How Accounts Payable Solves Cash Flow Problems.

Growing sales and increasing profits each year means a company is on the right path. But even growing companies making profits can get a hit with cash flow issues. It happens when cash flow management in the company is inefficient. For better cash flow management, companies prefer accounts payable outsourcing.

If a company’s payables are due before their receivables get credited, they may have to face cash flow concerns. This timing mismatch between when money comes in and goes out can strain resources. Outsourcing accounts payable helps to streamline these processes. Top accounts payable outsourcing companies ensure that payments are managed efficiently. They also make sure that payments align more closely with incoming cash flows. This enhances liquidity. It provides businesses with better control over their financial health. In this blog, we will explore how accounts payable solve cash flow problems. We’ll also learn why companies choose to outsource accounts payable to resolve many cash flow concerns.

Each time companies purchase goods from a supplier on credit, it is a transaction in account payable. Suppliers allow them to pay the owed amount within a period in the near future. This can be 30 days, 60 days, 90 days, or even more as per their business policies.

Without a credit facility, companies have to pay for all goods and services at the time they make purchases. It ultimately reduces the cash on hand.

Impact of Accounts Payable on Cash Flow

• An increase in accounts payable actually leads to a favorable cash flow. Simply because it indicates that the company has not immediately spent cash. Since funds have not left the company account, it is an increase in cash on hand for the accounting team.
• Its opposite is decreased accounts payable. Decreased accounts payable means that cash has actually been paid to suppliers. It has decreased the company’s cash on hand. Decreased accounts payable indicate unfavorable or negative cash flow.

Companies can create a healthy cash flow by extending the payment period of bills. A long accounts payable period can slow down outflows to improve cash flow.

The average payable period is the best parameter to determine a company’s success in managing its cash flow. It gauges the relationship between a company’s trade credit and cash flow. The formula to calculate the average payable period is simple. It is Accounts Payable divided by average daily purchases on account. The average payable period estimates the time companies use each dollar of their trade credit. It simply means how long a company uses its trade credit before paying suppliers.

Suppose the average daily purchase on account is $300 per day. The average payable period is 20 days.

If the company can extend its average payable period from 20 days to 30 days, it means deferring $3,000 in cash outflows in those ten extra days. It also means $3,000 of interest-free financing that can be used to make other necessary purchases.

Over time, how a company uses its accounts payable impacts its cash flow significantly.

Thus, companies need to work on maximizing their trade credit. It will help delay their cash outflows to take full advantage of each dollar in their cash flow.

A sharp eye on companies’ payables and expenses is required for sound cash flow management. An experienced account payable service provider can help companies to improve their cash flow with efficient accounts payable. Outsourcing accounts payable function can automate your AP processes for maximum efficiency. This will result in maximizing sound relationships with vendors or suppliers. So, one of the the advantages of outsourcing accounts payable is to get maximized payable period.

Below are more ways outsourced accounts payable can enhance cash flow for businesses:

1. Reduced Processing Costs: Outsourcing reduces the cost of processing each transaction. This allows companies to allocate resources more effectively elsewhere.
2. Timely Payments: Outsourced AP ensures all payments are made on time. It helps avoid late fees and maintain favorable terms with suppliers.
3. Discount Capture: Takes advantage of early payment discounts offered by suppliers. This directly improves cash savings.
4. Improved Accuracy: Reduces the likelihood of errors in payment processing. This can lead to disputes and delayed payments.
5. Enhanced Reporting: Provides detailed visibility into payable cycles and cash flow status. It enables better financial decision-making.
6. Scalability: Easily scales the accounts payable process during peak periods. This is done without the need for additional permanent staff.
7. Stronger Supplier Relationships: Maintains healthy relationships with suppliers through consistent and reliable payment practices. This may lead to more favorable payment terms.
8. Strategic Financial Planning: Outsourcing accounts payable services makes the payable processes more predictable. Companies can plan their financial strategies optimizing cash flow.

Enhancing your business’s cash flow management is critical for maintaining stability and growth. ARDEM is a leading business process outsourcing (BPO) company. We offer comprehensive accounts payable services that optimize the management of payables. Thus, we significantly improve cash flow for your business. Here are some key features of ARDEM’s accounts payable outsourcing services:

1. Vendor Management and On-Time Payments: ARDEM ensures that all vendors are paid promptly. We eliminate supply chain disruptions due to missed or delayed payments. This helps maintain good vendor relations and favorable credit terms.
2. Utility Bill Payment Management: ARDEM efficiently handles the management and payment of utility bills. We ensure these costs are controlled and paid on time to avoid any penalties.
3. Exception Invoice Management: ARDEM takes ownership of managing exception invoices. We bring them to a timely resolution. This aids in smoother financial operations.
4. Best Practices in Invoice Processing: We utilize accounts payable automation best practices. This helps us adhere to the best practices in accounts payable invoice processing. Thus, we enhance the speed and accuracy of transactions.
5. Comprehensive Outsourcing and Management: ARDEM offers a complete outsourcing solution for accounts payable processes. We help businesses manage high volumes of transactions. They can do this without the need to expand their in-house teams.
6. Integration with Existing Systems: The ARDEM accounts payable team is well-versed in various accounting systems. So, we ensure seamless integration with your existing business processes.
7. Scalability: As your business grows, ARDEM can scale its services accordingly. Our qualified and trained accounts payable analysts handle increased workloads.
8. Accuracy and Compliance: We also use peer-to-peer quality checks and best practices. Thus, we maintain high accuracy in accounts payable transactions. This ensures compliance with financial regulations.
9. Advanced Technologies: ARDEM uses state-of-the-art technologies, including ARDEM Invoice Manager. This employs machine learning and artificial intelligence. This helps us enhance invoice processing and accounts payable management.

Effective management of accounts payable is crucial for maintaining healthy cash flow. It is especially for growing businesses. By leveraging accounts payable outsourcing, companies can ensure timely payments. They can take advantage of discounts and minimize errors. All of these contribute to better cash flow management.

ARDEM’s advanced technologies and expert management help companies achieve a more predictable cash flow. This allows you to focus on growth and stability. Ready to take control of your accounts payable and improve your cash flow? Contact ARDEM today to find out more about our accounts payable outsourcing services. Start optimizing your cash flow now!