Top Tips for Enhancing Cash Flow with AP Automation
Our previous blogs have explored how accounts payable (AP) can become a revenue-generating function through robust automation and process planning. Finance leaders in all industries are now required to focus on strategic planning and growth, making AP automation a top priority for advantages like improved efficiency, accuracy, and lowered costs.
Enhancing controls over vendor payments has a direct impact on cash flow management and forecasting. By leveraging an AP automation system, CFOs can enhance cash flow and accelerate invoice processing and payment approvals, reducing cycle times and ensuring timely payments.
This can result in early payment discounts and strengthened vendor relationships, ultimately aiding companies in maintaining a positive cash flow. In this blog, we’ll explore the key items to consider when deploying an AP automation system to achieve this goal.
1. Change your processes, not just your system
Prioritizing invoice processing can dramatically improve cash flow management and create a snowball effect for your automation project. By enabling more accurate forecasting of upcoming payments, organizations reduce the risk of late payments, enhance cash flow predictability, and strengthen vendor relationships.
To harness this value, you’ll need to update processes and plan for the future before adopting an AP automation solution. If an organization fails to adapt to the newly automated process or enable their vendors to leverage it, they will fall into the trap of keeping the same shortcomings of their traditional processes in the new system.
Innovative CFOs will consider upcoming trends in their industry and adjust operations to both meet best practices at the time, and pave a path for future growth.
2. Leverage early payment discounts
As organizations plan to adopt an AP automation solution, they are presented with an opportunity to reassess vendor contracts. In many cases, they will discover clauses that allow for discounts on early payments.
Early payment discounts offer a strategic advantage in cash flow management, providing businesses with a chance to save costs and strengthen vendor relationships. To maximize these benefits, it's essential to understand the terms and conditions associated with early payment discounts and negotiate favorable terms. By identifying invoices eligible for early payment discounts and prioritizing payments accordingly, businesses can take advantage of these discounts without compromising cash flow.
AP automation plays a crucial role in this process. Streamlining invoice processing and payment approvals ensures timely payments and capitalizes on early payment discounts. This strategic approach not only improves cash flow predictability but also enhances working capital management, contributing to overall financial health.
3. Consider centralized payables
Centralized accounts payable processing consolidates invoice management, vendor payments, and payment records into a single department that oversees these activities for the entire organization. This approach streamlines AP operations by centralizing all tasks related to vendor communication, invoice processing, and payment management. Instead of each department or location managing its AP independently, a centralized team handles these responsibilities, ensuring consistency and efficiency across the organization.
When shifting accounts payable systems, your organization may choose to pivot from a decentralized AP process to a centralized one. Achieving economies of scale and eliminating redundant operations are two clear benefits of switching, but there are secondary benefits that impact cash flow.
If payments across all locations are centrally visible, it’s much easier to negotiate volume discounts with vendors and consolidate orders. This can limit manual labour and optimize cash flow.
4. Focus on vendor relationships
Ensuring your organization has a reliable way of contacting and collaborating with vendors is critically important to sustainable success. By building strong relationships with vendors, businesses can negotiate favorable payment terms and discounts, ultimately improving their cash flow position. AP automation plays a key role by streamlining communication, providing real-time visibility into payment status, and increasing timely payments.
Centralized management can help you better track vendor performance, identify opportunities for improvement, and strengthen long-term partnerships. A focus on vendor relations not only enhances cash flow management but also fosters a collaborative and mutually beneficial relationships between your business and your vendors.
5. Improve visibility to improve decision making
AP automation can revolutionize how CFOs make decisions about cash flow management. By providing comprehensive insights into payment statuses and historical data, CFOs can make more informed decisions in real-time. This allows for proactive adjustments to cash flow strategies, enhancing financial health and agility in responding to market changes.
With improved visibility into spend, organizations can also consider the impact of different cost centers on their business growth and streamline long- and short-term investments to maximize return. Forward-thinking CFOs should consider what reports are most useful, and how they can capitalize on the data and insights gained from them. This is a critical element of adopting a new AP automation solution. While this may seem like a daunting task, organizations can achieve this more easily by working with a provider that can deliver a high-quality solution as well as advice on which additional improvements to adopt.
6. Create a multi-year automation roadmap
Creating a multi-year roadmap for finance modernization and automation projects is crucial to align with organizational goals and guarantee resource availability. It helps manage risks, gain stakeholder buy-in, and scale the project effectively. The roadmap promotes continuous improvement and allows for periodic reviews and updates based on changing needs.
A clear roadmap is essential when automating AP. A structured implementation plan helps manage changes and complex processes effectively, and allows organizations to evaluate how this can impact long-term cash flow. A longer-term roadmap provides a phased approach, allowing for gradual adaptation and limiting risk. It also ensures compliance with regulatory requirements by responding to changes in a timely manner.
Implementing AP automation offers significant benefits for businesses looking to enhance their cash flow management. By streamlining invoice processing, optimizing payment schedules, and improving financial visibility, AP automation can lead to cost savings, better vendor relationships, and improved cash flow predictability. The key to ensuring maximum return on investment is to plan early, integrate these tips, and communicate with all stakeholders.
Discover how our solutions help organizations optimize their cash flow management while gaining the other benefits of using an AP automation solution: Talk to an expert today.
