Keep your AP Days shorter than AR Days. If you must sell on credit, make sure that the time it takes to get paid (accounts receivable days) is always substantially less than the time it takes to pay your obligations (accounts payable days). If you don’t know the terminology, find someone who doespreferably the person who walked you through your cash flow statement.
You always want to be collecting money at a faster rate than the rate at which you pay money. This seems obvious, yet I’ve seen two fast-growth large companies, run by extremely smart people, go out of business because they were upside down on this dynamic. For the accounting- and finance-inclined, a differed revenue account offends me way less than a large AR balance. After several memorable fumbles on this point personally, I can tell you that not having this balance in your favour will lead to a lot of anxiety and poor decision making borne of scarcity. (Brian Hamilton – Sageworks)