Budgeting & Forecasting › Cash Budgeting
How do you calculate cash payments to suppliers?
IntermediateAnswer
Apply the payment lag to budgeted purchases: if suppliers are paid the month after purchase, this month's payments equal last month's purchases (adjusted for any discounts taken). Purchases come from the materials/purchases budget. Correctly timing payments reflects the credit terms the business enjoys.
Purchases: Jan 60k, Feb 70k. Pay one month in arrears.
Feb payments = Jan purchases = 60k.Real-world example Payments in February equal January's purchases because suppliers are paid a month in arrears.