Managing cash flows should be considered a top priority by organizations of all sizes considering the accuracy of the long-term financial health indicator of the company. An organization’s P2P process has the potential to play an important role in improving cash flow management by optimising the buyer’s cash flow conversion cycle without interfering with the cash flow needs of its suppliers. According to gartner, 80% of financial leaders are concerned about their operating cash flow and automation is one of the most rapid ways to influence results.

There is a broad range of optimizing practices that can help CFOs manage cash flow. Centralizing accounts receivable, adopting a regular collection monitoring schedule, negotiating favourable conditions and discounts with suppliers, issuing purchases with available volume discounts and business expenditure initiatives. These practices are successful when coupled by a range of automation initiatives to improve cash management. Financial leaders need to understand that any strategy to optimize working capital is not complete without automation.

How does P2P Automation Strategies Improve Cash Flow Management?

1.Identify Bottlenecks Within the Order to Cash (O2C) and Procure to Pay (P2P) Process

Finance leaders must document the time required to complete each step of the process in addition to the days payable outstanding (DPO) and days sales outstanding (DSO) metric. Instead, end users are asked for an estimate of the time it takes to complete the task, organizations should take advantage of AI based process automation solutions to gain visibility in the end-to-end process. This removes any bias or hypothesis of having end-users and shows all the distinct activities involved in the process as well as how they interact with one another.

2.Efficient Management of Your Inventory

Inventory optimization has the potential to have a significant impact on cash flow management. Ordering too many stocks could result in stocks that are out of date or out of season if they don’t sell. This involves substantial waste with high storage and insurance costs. On the other hand, a lack of inventory can make you miss out on sales and frustrate your customers, who can then choose to search elsewhere.

To enhance your cash flow management, departments should work together to accurately predict the required inventory levels and establish common rules on how inventory is managed. Investing in an automated procure to pay solution can significantly improve cash flow. A streamlined and centralized procurement process results in much more rigorous approvals that prevent unplanned expenses and ensure that inventory is purchased from preferred suppliers only.

3.Real Time Cash Flow Reporting

Forecasting is a crucial step towards optimising cash management and ultimately improving profitability. To improve the accuracy of these estimates, companies should automate cash flow reports as opposed to relying on time-consuming, error-prone spreadsheets. It is useful to actively review the differences between actuals and forecasts and use this approach to update and improve the accuracy of your prediction assumptions. Automation solutions deliver consolidated business reports in a consistent and timely manner. This accelerates the decision making process and creates new sets of reports to capture valuable information that is not currently available.

4.Procurement and AP Needs to be Tightly Aligned

At present, half of the organizations sometimes take advantage of discounts on advance payments and 16% never do. Organizations greatly improve their opportunity to benefit from these reductions when their Procurement and Accounts Payable teams are closely aligned. There are key areas in which they can collaborate to improve working capital,

During negotiations, procurement must be informed of a realistic lifespan of the AP billing cycle in order for the discount to be truly realizable.

Once a discount has been negotiated, Procurement must communicate the terms and conditions to the AP and facilitate the process to ensure they are able to take advantage of the discount.

The AP may also play a role in sourcing, a task that normally falls under procurement by populating the process with budget information and questions about the supplier’s accounting team.

Procurement and Accounts Payable are also an excellent pair when it comes to analyzing expenses, as both have a role to play in ordering, approving and paying. To ensure this partnership works, both teams are encouraged to develop shared objectives and find a way to track progress together by deploying automation into the process.

We know there are many ways to solve a business problem, but resilience is essential in a world of constant change. Mismanagement of cash flows can result in organizational process failures and inability to grow. Your P2P process can make a huge difference to your cash flow and hence using Bautomate’s P2P automation solutions, a streamlined end-to-end process across your company is the way forward to achieve an improvised cash flow management.