How Managing Accounts Payable Strategically Maximizes Cash Flow

Cash Flow

After two years of defensive financial measures, businesses are ready to grow again.

Eighty-one percent of CFOs are focused on identifying new areas of value, Accenture reports.

Businesses are stepping up their investments in sales and marketing, new products, new business units, and other measures to increase revenues and profitability and achieve a competitive edge.

But those growth-generating initiatives require lots of cash. And that can be a problem for many businesses. Scaling costs, economic downturns, seasonal fluctuations, and weak cash management can cause cash flow issues – even high-velocity businesses can find themselves short of cash.

Without enough cash, a business may have to forego strategic initiatives. Under the most extreme circumstances, poor cash flow management can put a business in danger of financial insolvency.

Forty-six percent of CFOs say that “improving cash flow and financial planning” is a top priority, Deloitte finds; only “ensuring employee health and well-being” ranks higher in the eyes of CFOs.  

The Cash Flow Benefits of Accounts Payable Automation

Accounts payable automation can play a big role in helping a business maximize its cash flow. Here are three ways it can do so:

  1. Reduced overhead. Operational inefficiency is a big drain on company resources. The Institute of Finance and Management (IOFM) reports that 84 percent of the typical accounts payable practitioner’s day is wasted on repetitive, manual tasks such as keying data, shuffling paper, fixing mistakes, chasing down information, and responding to calls and e-mails from suppliers and stakeholders about where things stand in the process. What’s more, most accounts payable managers spend more time on manual tasks than on the managerial tasks they were hired to perform. Accounts payable automation significantly reduces operational overhead. Highly automated accounts payable departments spend less than one-quarter as much to process a single invoice compared to their peers with little or no automation, Ardent Partners reports. Highly automated accounts payable departments also process eight times as many invoices per full-time equivalent (FTE) as their peers with little or no automation. The money departments save from automation can be redirected to growth-generating activities.
  2. Better payment timing. It’s true: time is money. And the timing of payments to suppliers can have a big impact on a buyer’s cash flow. Paying suppliers too early sends cash out the door that a buyer could use for daily operations or to fund growth initiatives. Unnecessarily fast payments also are akin to providing your suppliers with a free line of credit. Conversely, paying suppliers too slowly can result in late payment penalties and missed opportunities to capture early payment discount offers from suppliers. The problem is that manual and semi-automated methods of approving invoices and paying suppliers make it hard for buyers to control the timing of payments. Approving invoices before their due date can be a struggle. As a result, many businesses pay suppliers as invoices are approved. Some businesses print and mail checks multiple times a week. Others don’t have payment terms in place with suppliers, or don’t enforce them. The streamlined approval processes enabled by accounts payable automation empowers buyers to make more strategic decisions about when to pay suppliers. For instance, with faster approvals a buyer may choose to accelerate payment to a supplier in exchange for a discount. Some buyers might use supply chain financing to speed payment to a supplier without impacting the cash on their company’s balance sheet.  And buyers can instantly extend their Day’s Payable Outstanding by several weeks – without impacting their existing terms with suppliers – by making payments with a virtual card. Regardless of the approach, better controlling the timing of payments to suppliers can free up cash that a buyer can use to pay off debt, reduce costly borrowing, and invest in the business.
  3. Enhanced visibility. Manual and semi-automated accounts payable processes make it hard to know where a business stands with its cash flow and corporate spending. Captured data is often incomplete or inaccurate, information isn’t timely, data is poorly organized, systems are fragmented, and decision-makers cannot readily access key variables.  Automating the invoice-to-pay process provides the real-time visibility that CFOs, treasurers, and other stakeholders need to manage a company’s cash flow. Graphical dashboards show the status of all invoices and payments. Accounts payable managers can quickly act on invoices approaching their due date to avoid late payments. Drill-down capabilities enable decision-makers to dig into invoice and payment data to understand how cash is being spent. For instance, CFOs can instantly see the total value of invoices by supplier, category, or business unit. Intuitive queries of historical data help CFOs identify trends in cash flow and corporate spending for financial planning. Data exports get information downstream fast, and real-time payment reconciliation helps ensure that end-of-month reporting is accurate and timely. These smart accounts payable insights can help a business better manage its cash flow.

Cash flow optimization means more in times like these.

Strong cash flow management helps businesses manage uncertain customer demand, fund digital transformation initiatives, reduce expensive borrowing, and free up cash to invest in growth.

Managing accounts payable strategically can help a business strengthen its cash flow.

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