How can good accounts payable management improve business growth?

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Accounts payable is not often at the heart of a company’s concerns. Very few are even aware of the issues behind this concept, which is all too often equated with a general accounting module. And yet, the companies that keep a close eye on accounts payable are those that have management processes focused on their operational performance. Good supplier relations, optimised risk management, cost reduction… When you think about it, neglecting these accounts creates disorder in the management of the company’s suppliers and slows down its development.

How can good accounts payable management improve a company’s growth? This article answers 4 specific questions.

The positive impact of advance payments on business growth

Accounts payable fall into the category of “administrative functions”, so they are not always given priority when companies are looking for new sources of growth. Other priorities always take their place, such as accounts receivable, particularly when it comes to staying ahead of the competition. However, this supplier management contributes to quality and has a major impact on the company’s growth when it is managed optimally.

In relation to order management, supplier accounts play a crucial role in optimising the flow of supply and demand. Some companies have a tendency to voluntarily introduce a payment term to optimise their cash flow. This creates a negative spiral. In fact, the time and energy spent on supplier disputes to catch up on payments can create organisational difficulties. And distract finance departments from their value-added tasks. When there are too many unpaid invoices, suppliers are obviously demotivated and supplier relations deteriorate. That’s when delays in delivery, negligence in respecting contracts, unexplained or un-negotiated price increases, etc. start to appear.

Not to mention the risks to the financial health of both suppliers and companies if payment deadlines are not met. Systemic risk is to be avoided. Public procurement authorities have understood this, which is why they are now required to pay upfront for services purchased.

However, in the opposite situation, i.e. when payments are made in advance, suppliers are much more committed. They can, for example, offer discounts for advance payments to suppliers. This can have a positive impact on cash flow.

A good working capital management strategy

Cash flow is the lifeblood of any business. Working capital management is a strategy in its own right, since it helps to control financial risks. These management activities are carried out by several internal departments, in this case the :

  • Purchasing,
  • Accounting and financial services,
  • Management.

What’s more, in the interests ofaligning performance management, it’s not just the one-off processing of supplier invoices that needs to be prioritised. You can set up a working capital advance system that doesn’t draw on supplier accounts to fund itself. Your company’s growth should not be based on increasing accounts payable, as this could lead to a chain of insolvencies. It should be based on releasing funds or building up provisions.

As with any supplier-customer relationship, it must be maintained in a healthy way. Hence the importance of good working capital management to ensure that accounts payable are not neglected.

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The importance of improving accounts payable

Improving accounts payablerelieves the real-time pressure on cash flow. This also increases your liquidity. Theincrease in accumulatedprofits therefore limits the risk of your business running a deficit. Subsequently, the improvement in accounts payable improves your bargaining power. A partnership with key suppliers builds trust and ensures a good relationship. This will enable you to negotiate new terms of payment or performance with guarantee periods if necessary. Partnering with suppliers is even common in order to build up stock reserves.

When supplier management is neglected, the purchasing process is directly affected. The company immediately misses out on many advantages. Neglecting accounts receivable also leads to malfunctions, such as the inability to pay invoices on time, even if they are electronically invoiced.

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Strategies for improving accounts payable

There are many ways of improving supplier management. Above all, the aim is to enable the company to grow under the best possible conditions and with good relations with suppliers. Of course, each company must adopt strategies that suit its expectations. However, there are a few key strategies for managing accounts payable effectively.

Centralisation is a good initiative. This makes it easier to analyse accounts payable, which in turn makes it easier to control accounts payable. The creation of a supplier portal. With this approach, you can also create a dematerialised processing environment, which avoids the accumulation of paperwork. Management software facilitates this work and generally offers this functionality. Good management of purchasing and therefore of the operational process also improves processing. This means digitising the purchasing validation circuit to better control expenditure and monitor the supplier item.

Accounts payable is one of the most important indicators of a company’s performance. It is therefore essential tohave the best possible administration of these accounts. To optimise this, Weproc is a SaaS management solution that digitises and centralises the management of your suppliers.

 

Want to learn more about our procurement management software Weproc? Contact us or request your free 15-minutes demo below!


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