1. © 2011 John Wiley and Sons, Inc. All Rights Reserved Selection and Procurement for the Hospitality Industry Purchasing ANDREW HALE FEINSTEIN AND JOHN M. STEFANELLI E i g h t h E d i t i o n

2. © 2011 John Wiley and Sons, Inc. All Rights Reserved CHAPTER The Optimal Payment Policy 11

3. © 2011 John Wiley and Sons, Inc. All Rights Reserved YOU SHOULD BE ABLE TO: Describe and differentiate the tenets of cash management. Identify the major objective of a payment policy. Critique the costs of paying sooner than necessary and of paying too late. Compare and contract the bill-paying procedures that can be employed by hospitality operators.

4. © 2011 John Wiley and Sons, Inc. All Rights Reserved TENANTS OF CASH MANAGEMENT Keep your money as long as possible Pay your bills at the correct time Collect monies due as fast as you can

5. © 2011 John Wiley and Sons, Inc. All Rights Reserved OBJECTIVES OF PAYMENT POLICY Keep money as long as possible Pay bills at correct time Collect money due as quickly as possible

6. © 2011 John Wiley and Sons, Inc. All Rights Reserved COST OF PAYING SOONER THAN NECESSARY Opportunity cost Cash shortages

7. © 2011 John Wiley and Sons, Inc. All Rights Reserved COST OF PAYING TOO LATE Reputation as a slow payer Jeopardize future credit potential Damage credit rating Placed on COD by suppliers

8. © 2011 John Wiley and Sons, Inc. All Rights Reserved COST OF PAYING TOO LATE (CONT.) Interest and penalties Lose cash discounts Legal problems Poor credit risk Lose good suppliers

9. © 2011 John Wiley and Sons, Inc. All Rights Reserved WHAT IS THE BEST PAYMENT POLICY? The best policy is one that allows you to keep your money as long as possible, unless you have a favorable incentive to pay early.

10. © 2011 John Wiley and Sons, Inc. All Rights Reserved THE MECHANICS OF BILL PAYING Paid-outs Invoices on account Credit card payments Bill-paying service

11. © 2011 John Wiley and Sons, Inc. All Rights Reserved ANOTHER WORD ABOUT DISCOUNTS Become intent on discounts May interfere with payment schedule Might stay with discounting supplier longer than should May need to borrow to take advantage of discount Does discount alter payment due date