Creditors' payment schedule (creditors' budget)

A creditors' payment schedule is a financial tool used in budgeting to track when payments to creditors for purchases made on credit are due. It ensures that businesses plan cash outflows effectively, avoiding late payments and financial strain.

Key Considerations for the Creditors' Budget

When preparing a creditors' budget, consider:

• When and how much stock is purchased on credit.
• When the payment is due.
• Payments to creditors are generally made in the month following the purchase. This forms part of the second step in the preparation of the main budget.

3. Credit Purchases and Payments Schedule

Purchase Type	Month	Amount (R)
Actual Cash Purchases	November 2013	10,000
	December 2013	12,000
Budgeted Cash Purchases	January 2014	10,000
	February 2014	13,000
	March 2014	14,500
Actual Credit Purchases	November 2013	14,000
	December 2013	12,000
Budgeted Credit Purchases	January 2014	10,000
	February 2014	12,000
	March 2014	13,000

• Payments for credit purchases are made in the following month.

Understanding the Creditors' Payment Schedule

Step-by-Step Approach

1. Determine the budget months → January to March 2014.
2. Identify credit purchases → If purchases are not provided, cost of sales is used to estimate them.
3. Payments occur in the month following purchases → December's credit purchases are paid in January, January's in February, and so on.

Example of Payments Schedule

Month of Credit Purchase	Amount (R)	Payment Due Month
November 2013	14,000	December 2013 (Not in budget)
December 2013	12,000	January 2014
January 2014	10,000	February 2014
February 2014	12,000	March 2014
March 2014	13,000	April 2014 (Not in budget)

Explanation of Key Concepts

Concept	Explanation
Markup = 100% on Cost Price	To find purchases from sales, we divide sales by 2. Formula: Cost Price = Sales ÷ 2
Cash Purchases = 20% of Total Purchases	Credit purchases make up 80% of total purchases.
Credit Purchases are Paid the Next Month	All credit purchases are settled in the following month.
Stock Replenishment	Stock is replaced monthly, maintaining a consistent opening balance.

Below is an illustration of the purchases amount of stock

Here is an illustration of what this means:

• Opening stock remains constant each month, so cost of sales = total purchases.
• If stock purchases are not given, calculate cost of sales instead.
• Cost of Sales = Total Purchases when stock levels do not change.
• Credit purchases (80%) and cash purchases (20%) are calculated using the cost of sales figure.
• Complete the Creditors' Payment Schedule, ensuring payments align with the following month.

Conclusion

• The creditors' payment schedule is crucial for managing cash flow in a business.
• Payments are always made in the month following the purchase.
• If purchase data is missing, use Cost of Sales to estimate purchases.
• Understanding the ratio of credit vs. cash purchases ensures accurate financial planning.