Making sure you always pay your business’s supplier on time and the right amount is a major thing for a business owner to consider. Missing payments may ruin the relationship your company has with its suppliers which can directly affect the inventory of the business and even halt operation altogether. Knowing the exact amount and calculating the amount paid overtime is important as well because it’s how you track the actual income of your business over time.
When you conduct business with suppliers, typically, it is expected that you pay at a later date, and the amount of your company’s accounts payable is the total amount that you will have to pay the suppliers. Usually, the time it takes to handle and completely fulfill your accounts payable balance is most commonly known as the payable period.
You can predict the exact amount for each purchase you make from the suppliers completely based on the projected sales of your business currently. Calculating payments that are expected to be made to your suppliers in a quarter based on the projected purchases from the suppliers and your payable period, can definitely help you budget your money properly.
In this guide, we will be showing you how to calculate the exact amount of money you should pay your supplier depending on the items needed to be supplied and the like. Here are the steps to making sure you calculate the amount owed to your supplier.
Determine what the projected sales is for your business in the current quarter and the next quarter. As an example, assume that your sales for the current quarter is projected at 100 dollars, based on the increase in sales and the trend of success for your business, the projected sales for next month is 150 dollars.
Step two you must identify all the known payable periods for your company and how much percent of your purchases that you make from the supplier each quarter based on your projected sales for the next quarter. For the example earlier, you can assume the payable period agreed upon was 45 days and you can assume that your purchases from the supplier you are dealing with are 65 percent of the projected sales for the next quarter.
You are going to have to multiply the percentage of the purchases with the projected sales for this current quarter to determine how much you’ve purchased from the suppliers from the last quarter. Multiply the percentage of the purchases with the next quarter’s sales to identify this quarter’s purchases from the supplier you are dealing with, based on the example earlier, 65 percent multiplied by 100 dollars to get 65 dollars in purchases during the previous quarter. Multiply 65 percent by 150 dollars to get 97.5 dollars in purchases for this quarter alone.
Now you have to divide your payable period by 90 days (which is one quarter) to identify the exact portion of the purchases from your last quarters purchases from the supplier you are dealing with for which you have to pay in the current quarter. For the example above , divide 45 days by 90 to get 0.5 payable
Next, you have to subtract the result from earlier from 1 to identify the exact portion of the purchases from the supplier for the current quarter from suppliers, which you also have to pay in the current quarter, for the example earlier, subtract exactly 0.5 with 1, and the result i 0.5
Lastly you have to multiply a portion of the purchases from the previous quarter and you will have to pay the current quarter based on the last quarter’s purchase from the supplier you are dealing with. Multiply the exact portion from earlier to the purchases from the supplier from this quarter. Add both results together and make sure to calculate the total amount of payments to the supplier, you will pay in the current quarter. For the example above, you have to multiply 0.5 to 65 which is 32.5, then you have to multiply 0.5 with 97.5 and get 48.5, add the 32.5 with the 48.5 and get 61 dollars of payments to be made in this quarter to the suppliers.