AP’s Evolving Role in Cash Management

Posted by Phil Bartolini on October 20th, 2017
Stored in Articles, Process, Procure-to-Pay, Strategy

From hard coinage to electronic funds, cash has been the basic building block of business success for centuries. Cash allows enterprises to pay employees, fulfill debt obligations, invest in new projects, and purchase goods and services. This indisputable truth has driven organizations large and small to emphasize the management of cash since the first businesses arose in ancient times. The modern era has complicated matters with a persistently low-interest-rate environment, forcing enterprises to seek out new cash management frontiers in order to maintain just the right amount of liquidity to survive in an increasingly competitive marketplace now and in the future.

Cash management is as much an art as it is a science. The finance team must decide which financial tactics and vehicles to use as part of their overall cash management strategy, calculating the risks and benefits of each and determining what options are the “best fit” for the enterprise. In doing so, finance must develop forward-looking cash forecasts that anticipate future needs and market conditions while working to ensure that the business will have enough cash available to fund its short- and medium-term obligations. The future is unpredictable, but finance must vigilantly perform its cash management duties to keep the enterprise adequately prepared. This is a difficult task that requires hedging against known and unknown risks – the “art” of cash management – which is further complicated by a sometimes volatile credit environment and persistently low rates of return on capital.

Where Accounts Payable Fits In

The Accounts Payable (AP) department has the potential to impact cash management and the financial performance of an enterprise. With cash management becoming such a prized source of value for contemporary enterprises; understanding the real-time impact of corporate liquidity allows the corporate executive team to understand the enterprise’s ultimate place and progress across a series of key financial and related goals. This connection between AP and cash management speaks to a collaborative effort that is years in the making: the treasury group is certainly augmented from a strong, interconnected relationship with the accounts payable function.

Today, the AP department should really be thought of as a hub of intelligence. Its importance is active and continuing to grow in magnitude. AP sits on a goldmine of information, including data held across thousands (or tens of thousands) of invoices and supplier payments. This data, when transformed into real, actionable intelligence, provides a fantastic link to internal stakeholders, external partners/suppliers, and key business executives like the Chief Financial Officer (CFO). “Cash is king,” the old adage goes, however, “cash intelligence” is even more critical in today’s increasingly- globalized business world.

Forward-thinking enterprises have already recognized the central role that AP can play in managing enterprise cash more effectively and have begun utilizing advanced financial solutions like dynamic discounting and supply chain finance (“SCF”) to drive better results for the business. Dynamic discounting, which offers discounts on a sliding scale, allows for greater discount capture opportunities. It also allows buyers to capture more discounts and suppliers have the option to receive payments more quickly. SCF is an early payment discount technique that utilizes third-party capital, normally from a financial institution or a bank, to pay an invoice early. In some instances, the early payment is made as soon as the invoice has been approved. SCF is an innovative way for enterprises to help their supply chains access credit and improve cash flow at a lower cost.

These advanced solutions already in development, and the continued interest in solutions that previously hadn’t been accessible, indicate the potential for AP to spend less time managing invoices and more time managing enterprise spend and providing strategic value to the enterprise.


ePaybles Convergence Part I: Cash Management

Understanding Supply Chain Finance

The State of ePayables 2017: The Next Generation of ePayables

The State of ePayables 2017: The Essential Elements for AP’s Future Success

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