CFOs Must Address AP and AR as Interest Rates May Rise Again

The jobs report has come in, and the Federal Reserve looks set to boost interest rates again.

For chief financial officers and finance executives, time is of the essence in examining and improving the two sides of what might be termed the cash flow “coin.”

Accounts payable (AP) is but one side of cash flow management; accounts receivable (AR) is the other. And the two must work together without silos. For the CFOs, the goal is visibility. They must take note of the cash-in/cash-out ebbs and flows, which in turn lead to better planning in the event of short-term emergencies. Over the longer haul, this attentiveness enables long-term strategies to be fully realized.

The cash flowing into a company is the lifeblood of keeping operations humming, getting staff paid, and having funds on hand, ideally, rather than having to tap credit to pay trading partners and suppliers.

The key lies in the elimination of manual processes.

Where Are the Pain Points?

PYMNTS Intelligence from the report “Automation Clears the Path to Getting Paid on Time,” a collaboration with Billtrust, found that 68% of CFOs cited payment delays as a lingering problem for their firms. As for the paper chase and the points of vulnerability, 45% of the CFOs surveyed mentioned invoicing errors and discrepancies also caused payment disruptions.

The data also showed that 77% of CFOs said they “probably” need to embrace more automation of their AR processes, and 27% said there’s a definite need to tackle technology and make investments to improve functionality.

The AP processes also have room for improvement. Seventy-six percent of CFOs said processing vendor payments is rife with friction, and exceptions have proven to be especially onerous. Nearly half of the finance teams surveyed said they spend hours responding to vendor inquiries on those exceptions.

The payments themselves take as long as 19 days, which has a negative impact throughout the supply chain. One company’s payables, after all, is another company’s receivables.

But, as PYMNTS Intelligence found, companies that are bringing in AP automation can shorten the payables process to a bit more than three days, which means that there’s better visibility into orders, inventory and growth. Roughly a third of companies that introduced automation into the mix found that there was a reduction of days’ delays in getting supply and materials shortages addressed.

Having the goods on hand to address current end-market demand — or anticipated end-market demand — can become a competitive advantage because it translates to higher sales, which in turn translates into the ability to build a cash buffer. And that turns into a bulwark against the vagaries of higher interest rates and other exogenous shocks. It’s a virtuous cycle that can help the smallest firms get bigger.

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