 accounts paper rise from trade credit in other words it is a spontaneous form of credit because in this form of credit the buyer of goods or services is effectively financing its is buying through the delayed payments over the due dates so in order to be effective the accounts payable management practices of the buyer needs to be consistent organized and cost effective there are certain guidelines for effectively for ensuring effective management of accounts like the buyer needs to determine the degree of firms financial function whether it is centralized or decentralized at the vendor level then the buyer needs to determine the number size and location of its vendors trade credit and cost of borrowing or alternative cost to be borne by the firm control of disbursement float which allows the buyer to use the available funds for a longer period of time introduction of new invent inventory management techniques because the older techniques or systems may not hope the extra volume so new techniques like MRP or JIT are to be used by the buyer usage of e-commerce or EDI because it offers a more efficient cost effective alternative to the banking checks stretching payables pushing on payables when it stretches beyond the due date to get the advantage of vendors provided grace period and it is generally done by the corporate cash managers how we can evaluate the payables the rule is that the value for each opportunity can be weighted against its benefit against its cost but there is a caution to be kept in view paying too early becomes costly without taking discount from the buyer from the vendor similarly paying too late may affect the buyer buying firms great worthiness how we can determine the economics of taking trade discount offered by the vendor trade discount can be evaluated using the computation of implicit rate so this implicit rate basically is viewed as the cost of foregoing the discount offered by the vendor there is an example that says compute the cost of trade credit if terms are 110 and 30 and the account is paid on option A at the 20th day or option B at the 30th day now using the model above with the given data the answer is that for option A the cost of trade credit is 44.32% and for option B it is 21.13% so this means that nearest foregoing our trade discount nearest to the discount period is much costly but it is lesser costly as we goes closer to the net period but after the discount period so we can say that funds cost 0% during the discount period and if it is the case then it is better to pay close to the discount period and but if we go after the discount period means we don't pay in the during the discount period then we have to pay at the last date last payment date then the credit cost to the customer jumps up initially but it declines as the net payment date is approached to the payment date managing cash disbursements the best practices are what a firm can use in order to manage its cash disbursements very effectively is to delay funding its bank accounts until the checks are cleared the firm needs to erect some safeguard measures against the checking frauds or the firm should try to pay electronically if it is cost effective then the another measure is that the firm can efficiently manage the bank charges if it is the case the bank the firm must try to manage the bank charges against the services offered to the firm by its bankers how we can evaluate the accounts payable management practices of the firm for that purpose we has we have an a mayor that is called as average payment period it is a useful tool that helps in evaluating a firm's credit worthiness for example a firm with accounts payable balance of 450 million euro and credit purchases of 40 100 million euro will have number of days of tables equal to 40 0.06 days or in simply 40 days now to determine the worth of this average payment period we this number should be compared with the credit days granted to the firm use using this comparison the early payment may cost to the firm we can determine it and if the firm pays beyond the credit days offered to this firm with this will destroy the buying firms relations with the vendors