The accounts payable (“AP”) team has, in recent years, taken on new importance to the enterprise as a source of financial and operational intelligence. The rich data that AP collects through the course of its normal activities can, when made available to other stakeholders, inform data-driven decision making in a variety of different cases, such as informing procurement’s supplier rationalization and spend analysis activities. AP’s data has gained in importance for another reason—it can be vital to treasury achieving its cash and liquidity management goals.
The reason for this new importance to treasury is because enterprise leadership have realized, because of the tight credit environment many businesses exist in, that they need deeper insight into the organization’s cash and liquidity position as well as the organization’s exposure to financial risk. Treasury has all this information, which has resulted in increased executive attention on the function. As a result, treasury is under much greater pressure to perform well at its core duty of maximizing enterprise cash while also limiting financial risk. In an environment where classic methods – such as letting cash sit in the bank – do not offer the same results they used to (and in fact some banks are even penalizing clients for carrying certain balances), treasury must look beyond their traditional toolbox for new and innovative techniques.
A Cash-Distribution Function
From treasury’s perspective, AP is a natural partner because the team that processes invoices is also, at its core, a cash-distribution function. In fact, supplier payments—which AP controls—are frequently the largest single source of cash outflows in many organizations. Having visibility into, and management of, this source of cash outflow can be critical to treasury’s cash and liquidity management goals. If AP makes a supplier payment that is not aligned with the enterprise’s cash management strategies (something which can easily occur), then this interferes with the amount of working capital available to fund other enterprise initiatives.
Additionally, AP’s financial and operational data can inform better financial planning and forecasting on the treasury side. Data visibility is paramount in the modern business world, and more information can always benefit both sides of the equation. This can only, in general, be achieved through automating the AP process. Because of this, treasury can be a natural ally in pushing for greater levels of AP automation.
A Richer Supplier Payment Strategy
Creating and managing a supplier payment strategy is another reason AP and treasury are natural partners. AP’s impact on cash management can be significant given its position in the enterprise, and as such it makes logical sense to enlist treasury in managing how and when suppliers are paid. A well-managed supplier payment strategy, where accounts payable and treasury collaborate, can result in a more effective use of the enterprise’s cash, in addition to a deeper understanding of its liquidity risk as well. This better window into liquidity risk results from increased visibility, which can also lead to a more nuanced cash management strategy.
Final Thoughts
Accounts payable and treasury make for natural partners in the enterprise, which is especially true given that treasury is tasked with managing enterprise cash and AP is fundamentally a source of enterprise cash outflows. Because of this reality, AP and treasury should each make good faith efforts to collaborate, whether it is through holding regular meetings between department leadership or even at an informal level between employees. At the end of the day, however, the enterprise wins when AP and treasury work together.
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