Cash flow is vital to all businesses ranging from small businesses to enterprise organizations, government agencies, and nonprofits. Having cash on — on an ongoing basis — hand brings with it security, stability, more buying power, flexibility, and the ability to grow.
However, despite robust sales, it’s not unusual for money to be tied up due to short- and long-term obligations with vendors. These commitments can restrict the positive flow of cash into your business. What if you could address potential cash flow restrictions at the source? Optimizing accounts payable functions is one way to do just that.
Dolphin Corporation’s Brian Shannon recently discussed how to optimize accounts payable and accounts receivable processes with SAPinsider. According to Shannon:
“‘Near-cash’ processes are accounts receivable and accounts payable. There is significant opportunity to optimize these processes to reduce cycle time and eliminate inefficiencies. Most times, organizations look at these processes in isolation. The approach of looking at both processes from a more strategic view offers an opportunity to leverage infrastructure, provide improved transparency to the processes, and improve cash flow while reducing risk.”
So, which accounts payable processes should you focus on? According to Deloitte, optimizing key accounts payable processes can free up cash flow. Those accounts payable functions are:
- Your vendor selection process
- Your supplier master data set-up process
- Your contractual review process
- Your procurement process
- Your accounting and reporting process
While both Deloitte and Shannon offer a number of accounts payable optimization tips that you should definitely take the time to read, the following takeaway comes from Shannon:
“…early payment cash discounts are significant for the impact they can have on an organization’s bottom line. Way too many AP teams think they are capturing all discounts. The problem is that most times they are not capturing all discounts that are available, and then secondly they don’t have visibility to transactions that are not using discount terms. Insight into these aspects can mean a big difference for discount contribution.”
Optimizing a single process will likely have a positive impact on your cash flow. Optimizing multiple AP processes strategically as Shannon recommends is an even better approach, one that can improve transparency, improve cash flow, and reduce risk.
1. Deloitte, “Strategies for Optimizing Your Accounts Payable,” – http://www2.deloitte.com/content/dam/Deloitte/ca/Documents/finance/ca-en-FA-strategies-for-optimizing-your-accounts-payable.pdf
2. Dolphin Corp, “Brian’s Q&A Session on Optimizing AP and AR Processes,” – http://www.dolphin-corp.com/2014/12/brians-qa-session-ap-ar-optimization/
3. Small Business Chron,-Importance of Cash Flow to a Business,” – http://smallbusiness.chron.com/importance-cash-flow-business-57376.html