With the sophistication of modern accounting systems, why does this happen? In our experience, the problem occurs because the buying function and the accounting function are in different departments. The buying function simply recognizes the need to purchase items for the business and doesn’t understand the cash flow cycles of the business. The accounting function ultimately receives the vendors’ invoices and then tries to figure out when they can pay for it.

And, guess who gets punished? The accounting department - due to the company’s lack of control, the vendor doesn’t receive timely payment and guess who gets the call for collections?

Open to Buy
The results can be disastrous -- but the "Open to Buy" cash forecasting system provides a simple way to get back on track and stay there. We developed the “Open to Buy” system based on the needs of a client in the retail industry. This retail client had nine stores in Oregon and Washington. As happens in many retail operations, the company had four buyers, each responsible for certain product lines in the stores. Buyers many times have an insatiable appetite to acquire products for their areas. The difficulty arises in controlling and coordinating how much the buyer is allowed to acquire. The “Open to Buy” system allows the manager to forecast the company’s ability to pay future bills and then compute a daily or weekly upper limit for each buyer. The "Open to Buy" system uses a simple form to schedule in advance, week after week, the amount of cash on hand, cash receipts expected, and commitments (payroll, taxes, invoices due, etc.) that must be met. Once the information is collected and put on the form, it is quite easy to determine the amount of buying that can be done now, knowing that cash will be available in the future to pay for the invoice.