Saturday 23rd September 2017,
Payables Place

3 Reasons AP is Vital to Cash Management

3 Reasons AP is Vital to Cash Management

Accounts payable (“AP”) in the modern age has the potential to become a hub of financial and operational intelligence for the greater enterprise, pushing this once back-office function into new strategic territory. Consider that every transaction that generates an invoice passes through the AP process at some point or other, as well as any supplier payment. This position in the enterprise means that AP can be a critical partner in a greater, non-tactical task: helping to achieve treasury’s working capital goals. AP can, in fact, be absolutely vital to managing enterprise cash effectively, and the reasons are:

  • AP manages, schedules, and is ultimately responsible for supplier payments. Supplier payments are frequently the largest non-payroll source of cash outflows in the average organization. Any transaction that generates an invoice, and results in paying a supplier, flows through the AP process. This places accounts payable into a central role in the organization and, as a result, affords them the opportunity to have an impact or effect on enterprise cash. A well-managed supplier payment strategy, which involves leveraging supplier payments as levers of strategic financial value to maximize the deployment of enterprise cash, can result in AP showing its strategic value to the organization. When this supplier payment strategy is designed and implemented in concert with treasury, and aligns with working capital goals, AP becomes a powerful driver of financial value.
  • AP collects extensive financial and operational data. Ardent has written extensively about the financial and operational data that AP collects. In many organizations, this collection focuses solely on management and data archiving. If AP is able to leverage this data, however, they could generate highly-focused intelligence on financial and operational situations for use in aspects such as treasury’s cash forecasts and procurement’s supplier performance management initiatives. This data could also include upcoming payments, which treasury could use to gain more nuanced control over the enterprise’s ultimate cash position in a real-time manner.
  • AP can drive cost savings through alternative payment methods. Accounts payable’s impact can move beyond paying invoices on prescribed due dates. In fact, AP can have a direct impact on the enterprise’s bottom-line through early payment discount capture and alternative solutions such as supply chain finance (“SCF”). Capturing more early payment discounts can add liquidity directly to enterprise coffers, and leveraging SCF for a sizeable proportion of the supply base (no easy task, but the benefits are astounding for those that invest the time and resources) can provide more nuanced management of days payable outstanding (“DPO”) without impugning the supplier relationship through delaying payment as long as possible to improve ultimate cash management

Final Thoughts

To this day, many organizations still perceive AP as a tactical, back-office invoice-processing machine. This is far from the only thing accounts payable can do to benefit the enterprise; the function can have extensive impact on treasury’s cash management strategy by providing a high number of financial data points that treasury can use to augment its own financial intelligence and achieve its working capital goals. Whether it is working with treasury to create and manage a supplier payment strategy, or becoming a real-time source of financial and operational intelligence, AP has the potential to impact enterprise cash for the better.

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