B2B Payments

It’s Toolkit Overload For AP Cash Optimization


Cash management in the accounts payable department goes far beyond paying supplier invoices on time. The prongs of dynamic discounting and developing a strategic payment plan, along with external ways of optimizing cash flow, like supply chain finance, combine into a complex toolset that AP professionals have to manage.

Today, technology has allowed a plethora of services across this toolset to emerge, all geared towards optimizing cash flow within the corporate procurement and spend arena.

The problem, says APEX Analytix Software Product Management Head Danny Thompson, is that the corporate cash and supplier management space is now too fragmented to be as effective as it could.

“We’re seeing a lot of different dynamic discounting and supply chain finance-type products getting the attention of prospective clients,” he told PYMNTS in a recent discussion. “The feedback we’ve gotten from clients and some of the independent research we’ve commissioned has indicated that there’s been a mix of results from those programs.”

Solutions providers that target procurement and AP departments may offer a mechanism to capture early discounts or streamline supply chain financing, but the firms that do so, claimed Thompson, “focus on one part of the overall picture, and they don’t cover all of the bases.”

AP cash management solutions are more interconnected than some companies may think, he added. For one to be effective, another has to be set in place.

“For example,” offered Thompson, “it’s hard to be successful in dynamic discounting or supply chain finance without doing something about your standard payment terms.”

APEX Analytix, the executive added, has seen that, for many of its clients using a dynamic discounting program, the vast majority of the discounts that are “captured” are manually negotiated with suppliers and not through the use of other solutions, like automated payment term development.

The need to integrate multiple cash management solutions can also attest to the varying degrees to which corporate buyers understand what they actually need to optimize their procurement processes.

“Some clients find out they’re not even paying to their payment terms; they’re paying upon approval,” explained Thompson in describing how corporate buyers react when they adopt a more sophisticated cash and supplier management toolset. “More sophisticated companies kind of know there’s missed opportunity.”

Whether corporate buyers understand their shortcomings in cash management or not, those failings won’t improve with a one-sided solution, Thompson argued.


Balancing Act

APEX Analytix is attacking this issue through the launch of a four-point cash management program, rolled out late last month. The initiative combines supply chain finance, payment term optimization, dynamic discount management and other methods to manage suppliers and streamline payments.

It’s a balancing act of solutions, and that act becomes even more difficult when taking into consideration the needs of the suppliers on the receiving end of these tools.

For example, Thompson explained, a corporation may understand that longer payment terms could help optimize cash flow, but that won’t necessarily be welcomed by a supplier.

“You can’t just put in place a payment term extension program and say, ‘Sorry, suppliers, we’re just not going to pay you for another 30 days,’” he said.

Combining AP solutions, he added, involves understanding what corporate buyers’ suppliers and manufacturers need, too. And each supplier will approach buyer strategies, like payment term optimization and discount negotiations, differently.

“The needs by suppliers can vary greatly,” said Thompson. “One supplier may say that it’s OK to wait 30 more days, that they want to get their full payment. Their margins aren’t big enough to push for an earlier payment and give up a discount."

“Others, particularly high-growth suppliers that are smaller, getting the cash today could be a lot more important to them than the actual amount of that cash.”

Here enters another driver behind a multifaceted cash flow management toolset: the ability to have cash-on-hand to pay the suppliers that demand it faster and the capability to negotiate payment terms and capture discounts with suppliers willing to do so.


Payment Optimization

Thompson also pointed to the array of payment options that corporate buyers have today as yet another reason cash flow optimization is more complex than ever.

Some payment tools provide more leeway between payment submission and settlement. Others, while faster, can run the risk of fraud.

“The p-card works great for suppliers who are retail in nature and willing to exchange that credit card fee for an immediate payment,” Thompson said. “And that works for customers as well, because that’s another invoice they don’t have to process; there’s a mutual benefit there.”

For those suppliers unwilling to take on that card fee, however, other payment options are required — but themselves come burdened with disadvantages for buyers.

The paper check, for instance, was once depended upon by corporate buyers that enjoyed the extra few days it took for a check to get cashed.

“Checks do have this ability to extend working capital for clients because of the float involved in printing a check, mailing it and getting it cashed,” Thompson noted. “But that number of days you’re getting on float is coming down now that the checks don’t have to be presented on the other end for them to be cashed. The banking system is helping shrink those float days.”

Without the extra time for a buyer, checks are looking a lot less attractive, Thompson added. Lost checks in the mail and the potential for fraud mean APEX Analytix’s clients are finding their own ways to ditch checks.

Electronic payments are on the rise, Thompson said, but still aren’t without their downfalls.

Mandatory ACH, for example, is a buyer favorite. “It’s a model which I think most suppliers like because they get their payments a little bit quicker,” the executive noted. “The headache associated with those payments relate to cash application.” He explained that corporate buyers must ensure that a mechanism is in place for suppliers to be able to access those funds in the first place.

Finally, wires are also sticking around, though not due to buyer demand, Thompson said.

“People are being paid by wire sometimes, and of course, suppliers sometimes have needs that require them to request payment by wire,” the executive explained. “But AP departments are really reluctant to make payments with wires because of their risk of fraud and the additional manual processing costs associated with wire, as well as the difficulty in recovering money that went out mistakenly.”


An Ongoing Struggle

By Thompson’s anecdotes, it seems to be an ongoing struggle for corporate buyers to balance all of the tools they have at their disposal.

In cash flow optimization, not only do these corporates have to integrate multiple solutions to cover all of their bases, but they have to assure that the tools available will meet their supplier needs as well.

And with all of the payment options out there for corporate buyers — each with its own set of pros and cons for both sides of the transaction — the picture of optimizing AP processes becomes even more complex.

Thompson said the key to resolving this tangle of accounts payable solutions is to ensure they all work together.

“We’re trying to take an open approach to the way clients use our products,” he said. “We know it’s very likely that they’re going to have their own banking relationships they might want to use for supply chain finance. Or, they may already have an eInvoicing or eProcurement provider to automate their purchase order and invoice processing.”

Whether using APEX Analytix solutions or not, it’s critical, the executive added, that the AP solutions toolkit is complete.



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

Click to comment