3 Ways AP Automation Improves Working Capital Performance

3 Ways AP Automation Improves Working Capital Performance

Guest Post by Canon Imaging Solutions Division

Read time: 3.5 min.

Most companies are doing a better job of managing their working capital.

That’s according to The Hackett Group’s 2018 U.S. Working Capital Survey based on a review of the annual financial statements of the 1,000 largest non-financial companies in the United States.

The average Cash Conversion Cycle (CCC) of U.S. businesses – a measure that uses a company’s payables, receivables and inventory to determine its ability to convert invested resources into cash – improved by 4 percent in 2017 compared to the previous year, The Hackett Group found.

Companies also extended their Days Payable Outstanding (DPO) in 2017 – taking 3.4 days longer on average to pay their suppliers compared to the previous year, per The Hackett Group. Extending the average amount of time to pay suppliers enables businesses to free up cash that can be used to pay down corporate debt, invest in research and development and support other growth initiatives.

Download the Guide: “10 Proven Steps to Accounts Payable Automation Success”

But not all companies are cashing in on stronger working capital performance.

The gap between top performing companies and their also-ran peers is growing, The Hackett Group found, indicating that many companies could be doing a better job at managing their working capital.

If your company’s working capital performance is lacking, accounts payable automation may be the answer.  Automating accounts payable processes improves working capital in three powerful ways:

  1. Enhanced cash flow analysis and liquidity management: The data generated by an accounts payable department provides a unique window into the financial health of a business. The importance of Financial data continues to grow and be considered a critical corporate asset.With an automated accounts payable solution, CFOs and other financial decision-makers can drill down into cash and spend data to identify trends and patterns, determine how well-positioned a company is to take advantage of early payment discount opportunities, assess budget performance and support strategic decision-making. The technology provides actionable cash flow insights such as: the status of invoices and payments, on-time payment percentage, spend visibility and trends, spend-to-supplier ratio, and the percentage of early payment discounts captured.  All this enables timelier and more accurate accrual reporting and greater reporting integrity, which supports improved working capital performance.
    Your ERP is at the center of this data and will become an increasingly vital source for business insights. IT and Finance will not only provide actionable insights to management, but be able to provide improved role based reporting to users by leveraging the latest ERP features.
  2. Lower the Cost of Goods Sold (COGS): Most suppliers will exchange discounts on the amount due on an invoice for early payment. The earlier the payment, the larger the discount that suppliers will offer.  The average discount that suppliers offer for early payment stands at 2 percent.  But many buyers in industries such as pharmaceuticals, biotechnology, consumer packaged goods and high-tech consulting routinely capture early payment discounts of more than 6 percent.  Unfortunately, it takes so long for accounts payable departments that operate in a manual or semi-automated environment to approve invoices that most discounts for early payment are out-of-reach.  Automating accounts payable can reduce invoice approval cycle times by more than 75 percent, opening the door to capturing more early payment discounts.
  3. Better DPO: DPO is a key component of strong working capital performance. One way that automation helps businesses manage DPO is by facilitating supply chain financing: when a buyer pays a supplier early using cash from a third-party, such as a bank, financial institution or investment firm.  As with other approaches to early payment discounts, a buyer and a supplier negotiate discount terms on an approved invoice.  Once the terms of the discount are agreed upon, the third-party assumes the risk and pays the supplier.  When the invoice reaches maturity, the buyer pays the full invoice value to the third-party.  The buyer receives a cut of the discount on the invoice while maintaining DPO and preserving their cash.   Additionally, paying suppliers using certain card programs enables buyers to instantly extend their DPO, without changing their payment terms.  The funding for the payment is provided by the buyer’s bank via the card program.  Since the payback period to the card issuing bank only starts after the payment is initiated, businesses can extend their DPO by several weeks.


Each of these benefits contributes to better working capital performance. Together, they are the beginning of a tantalizing business case for accounts payable automation.

Rising interest rates and record levels of mergers and acquisitions will force more companies to take a hard look at how they manage their cash.  Automating accounts payable is one way that companies can improve their working capital performance in 2019.

If your company wants to better manage its working capital, contact us to learn more about AP Automation and key ERP features you can leverage to bring even greater value to your organization.

This guest post is brought to you by our Partner Canon Imaging Solutions Division. Ready to take action? Download Canon’s latest white paper “10 Proven Steps to Accounts Payable Automation Success” to arm your team with a clear path to success.

About Canon Imaging Solutions Division

Canon Imaging Solutions Division (CIIS), a wholly owned subsidiary of Canon U.S.A., Inc., brings together Canon’s world-class imaging technologies and information management expertise to assist organizations in achieving their digital transformation objectives. With a focus on innovation, CIIS’s software development and solutions delivery capabilities scale across several practice areas: Business Process Automation, including Procure-to-Pay and Order-to-Cash automation, Document Solutions, Information Management Services with a focus on content capture, management and collaboration, and Security and Infrastructure Management. With expertise in emerging technologies such as artificial intelligence, machine learning, and big data analytics, CIIS deploys its solutions in partnership with leading technology providers and offers comprehensive consulting and professional services that are trusted by organizations of all sizes. Additional information about the company, its programs and mission can be found at ciis.canon.com.