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4 Quick levers to improve cash flow management in AP

Cash flow optimization is a top priority for most companies to combat inflation and uncertainty. Here are four quick ways to optimize cash flow and how Celonis can help drive rapid impact.

The need to optimize cash flow

Looking at cash flow it appears to be a simple equation of money that flows into a company and money that goes out. If more money comes in than goes out, you’re looking at positive cash flow, things are generally going as they are supposed to, and your company’s financial health is looking good. That formula worked well in the past but now companies find themselves in circumstances that demand they do more with less. And less. And less… 

The Organisation for Economic Co-operation and Development describes the current economic environment as a bleak mix of “persistent inflation, high energy prices, weak real household income growth, and tighter financial conditions.” You could say companies are facing the four horsemen of growth-apocalypse. And Deloitte noted in their working capital series that interest rates are at the highest levels in more than 15 years.  So, borrowing money to deal with climbing prices is not the best option right now.

Improving cash flow: The potential of Accounts Payable 

Which is why companies are looking for ways to manage cash flow more efficiently. The old formula still holds up, but today it’s about making every dollar count.Companies have limited control over when they are paid, so Accounts Receivable (AR or A/R) is harder to improve.  Accounts Payable (AP or A/P), on the other hand, can make a big impact on improving cash flow management because it’s the money that goes out. If you can ensure only the money that needs to go out goes out, you can immediately improve free cash flow. 

As usual however, the devil is in the details. Meaning it’s about finding the right levers to optimize cash flow within the Accounts Payable process

Here are four levers that can have immediate impact on your cash flow and a short explanation of how Celonis could help you take action:

Lever 1: Make sure you’re not paying invoices out; it's hard to get that cash back

There are many reasons why duplicate invoices show up in your ERP system - whether the price changed and a new invoice was sent, or the supplier had to send an invoice with updated terms. Unfortunately, traditional ERPs don’t always find the approximate duplicates - those that don't match exactly in all the important invoice fields - but have similar invoice numbers, similar invoice dates, quantities, or prices.

As a result, they slip through the cracks, get paid, and are often (but not always) found through audits. Instead of waiting six months for your auditor to find out you paid the vendor twice, you can use solutions like the Duplicate Checker App to prevent the duplicate payment before it happens.

Lever 2: Organize those dusty open credit memos to ensure they’re getting used in time

Tracking which credit memos have been used, and which are about to be written off is a challenge. An AP organization’s focus is always on making sure the open invoices are paid on time to keep the key suppliers happy and retain good supplier relationships, which often leads to credit memos falling down the list of priorities. 

Credit memos can be up to hundreds of thousands, if not millions of dollars. Making sure that you are accounting for these in your payments with the vendors can be a quick way to improve your cash flow. Our Open Credit Memo App prioritizes open credit memos based on value and urgency based on when they will be at risk of being written off.

Lever 3: Take the cash discount on every eligible invoice

Cash discounts are often negotiated in a number of industries as an incentive for Accounts Payable departments to pay suppliers early. A/P teams can use these opportunities to their advantage to obtain a discount on all goods or services procured by the company. However, it can be difficult to keep track of which suppliers you have discount agreements with and which open invoices can take advantage of these terms.

Our Parked & Blocked Invoices App prioritizes invoices based on your goals to pay invoices on time and take advantage of available cash discounts. The app calculates the discount amount and invoice due date with the discount to give your team operational visibility and ensure you take advantage of the discount.

Lever 4: Pay invoices with the best terms negotiated

Payment terms are often spread across multiple documents and systems. The primary sources are the vendor master data, the invoice, and the purchase order (PO). Procurement teams always fight to negotiate the best terms for your business, but they may not always base them on which source the Accounts Payable team considers the "source of truth". We often find that A/P teams either stick to paying the invoices based on the payment terms on the invoice or PO.

Therefore, the Accounts Payable department may be paying invoices too early when the best negotiated payment terms are outside the "source of truth". Our Payment Term Checker pulls in data from multiple sources to check payment terms in vendor master data, purchase orders, and invoices to suggest the best available terms for the AP team.

As you can see, there are many ways you can improve your cash flow management with immediate impact. You can choose to take action on your own or can pick Celonis as your weapon of choice in the battle against the four horsemen of growth-apocalypse.

Want to see more about how Celonis can help you drive rapid impact across Finance?

Check out our Improving DPO demo.

Get all the details on improving working capital in our eBook.

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Katharina Laumann
Content Marketing Manager

Katharina Laumann is a Content Marketing Manager for Celonis and has been writing about process mining since 2018.

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