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How to Convert from Credit Purchase to Cash Purchase 4/5

Updated: May 2, 2020

Fundamentals

There’s an enduring axiom of success that says, “The Universe rewards action, not thought.” Yet as simple as this principle seems, it’s surprising how many people get bogged down in the analyzing, planning and organizing stages when what they need to do is to simply take action.

“What we think or what we know or what we believe is, in the end, of little consequence. The only consequence is what we do.” – John Ruskin

When you take action, not only do additional resources come your way, but you get feedback that helps you adjust your course and refine your approach.


Action Step

1. Applying Hard Brakes on Credit Purchase Practice by informing our supplier that we appreciate their efforts and relationships and as an organization we have decided to stop dealing in Credit whether its Purchases or Sales, so we would from now onward not be able to purchase in Credit.

2. Acknowledge their Outstanding Amount and then given the circumstances negotiate and propose a

Firm repayment plan of

a. Installment Amount you would be able to repay

b. No. of Installments

c. Dates of Payment

3. Make a firm Pledge with the Supplier that from now onward you would be purchasing in Cash with an intention of Selling in Cash which would ultimately turn into a greater sales turnover and a win-win situation for both.

4. Bargain Hard for a better price as you would be purchasing in Cash and not on credit to pass that discount to our customers who are also purchasing in Cash from us.

5. Reduce your Dead-stock by requesting the supplier to take the goods back and reduce the outstanding Amount or Liquidate at Discounted Prices to increase Cash Position.

6. Cash Flow Planning of

  • Incoming (Sales, Receivables, Capital Injection, Qarzan, Dead-stock Liquidation) and

  • Outgoing ( Purchases, Expenses, Supplier Repayments)

7. Intelligent Purchase Planning to balance Purchase Requirements with Cashflow.

Benefits for the Supplier

1. Supplier receives a Firm Payment Plan for the Outstanding Amount which would assist him in planning his Cashflow.

2. Our Cash Purchases and frequency of Purchases would soon make him Cashflow positive.

Benefits for Us

1. Accounts Payable pressure from Suppliers would be reduced to zero in a short time.

2. Our Purchasing would be very Practical ( Limited Choice and Limited Quantity)

3. Low Dead-stock

Expected Time Frame

Depending on the size of Business would be 3-6 months.

Outcome Achieved

  • No Supplier Payable

  • No Overstocking

  • Intelligent Purchase Planning


Real-Life Experience

Suppliers who assisted in converting from Credit to Cash eventually benefited more and that in turn developed a stronger relationship


Previous Post

1. Benefits of Cash Business vs Credit Business

2. Benefits of Cash Purchase vs Credit Purchase

3. Benefits of Cash Sales vs Credit Sales


Next Post

5. How to Convert from Credit Sales to Cash Sales



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