Building a World-Class A/P Function

Some companies have responded to this post-recession reality by squeezing their suppliers and pushing out their payment terms. Although this strategy benefits working capital management at the customer company (the buyer), it obviously has the opposite effect on the seller, resulting in unintended ripple effects on the buyer/supplier relationship. Delayed payments put pressure on cash flow, making it difficult for suppliers to pay their bills, make payroll, or fund expansion. They might also need to incur borrowing costs while waiting to be paid. Since delayed payments can reduce the financial stability of the supplier organization, they can also add risk to the supply chain and may eventually constrict the buyer’s procurement options.

More and more companies are realizing that if they want to improve working capital management in a sustainable way, they need to seek out new strategies for procurement, payables, and management of their relationships with suppliers. In many forward-thinking companies, the accounts payable (A/P) manager is the agent of this change. In fact, A/P is the perfect place to focus efforts to improve working capital management. Since the function determines when invoices are paid, it is at the forefront of regulating cash flow.