Accounts Payable and supporting Q4 cash flow management

  • 23 Jun 2020
  • Thought leadership
Accounts Payable and supporting Q4 cash flow management  Image

For many financial teams, the year-end close process can be stressful. Instead of enjoying the festive mood of the holiday season, accounts payable professionals may find themselves working long hours and feeling stressed about the numbers. Financial stress isn’t limited to specific seasons, either. In recent months, the COVID-19 pandemic has created a lot of uncertainty with regard to cash flow management. Companies whose fiscal year is not tied to the calendar year faced closing their Q4 during the disruption that affected companies around the world, forcing many offices to shutter their doors.  

But it doesn’t have to be that way. Streamline the process by harnessing the power of accounts payable to support your company’s cash flow management - both in Q4 and throughout the year. Discover how any organization can monitor the cash flow and act with confidence during times of financial unpredictability. 

Get to Know the Q4 Cash Flow 

Doing an analysis of your organization’s Q4 cash flow patterns from previous years makes it much easier to determine what could happen now (and in the future). AP automation tools put pertinent data within reach, enabling you to detect patterns, identify key performance indicators (KPIs), and make changes along the way. With access to this data at your fingertips, it’s important to re-familiarize yourself with the terms and conditions of suppliers and vendors before the year comes to a close. Is there room for negotiation to improve those terms and support improved cash flow management? Talk to the vendors to find ways to save money at this crucial time of year. 

It also helps to look outside of your organization and examine the seasonal cash flow issues typically associated with the industry. Use predictive planning to account for all potential expenses, including one-off purchases. Use AP automation to keep track of vendor updates and expenses in real-time, and remain on top of spending and money owed to gain greater control over Q4 cash flow. Identifying and performing an analysis of all of these seasonal patterns helps prevent cash flow frustration during this busy time of year (and beyond). 

Should You Delay to Pay? 

Savvy management uses AP automation to detect patterns and develop a viable strategy for the future. Sometimes it pays to delay paying specific corporate bills until the due dates. In other situations, early payment discounts can add up to serious savings - and improve cash flow. Use automated bill payment options to send and receive payments instantly, and in accordance with due dates. Electronic payments can be made on the due date without further thought or effort. 

Also, be personable with suppliers to get the best possible terms by maintaining ongoing relationships based on mutual trust. Plan for times of uncertainty by working out reasonable agreements with regular suppliers in advance. Nurture these relationships to gain access to payment arrangements that can boost Q4 cash flow, and be a financial advantage to the company throughout the year. 

Negotiate the Terms with Vendors 

The accounts payable department has transformed from the back office shadow to a crucial part of a company’s strategic team, sharing information with the C-suite to help them save money, streamline operations, and improve cash flow. AP automation readily provides data that helps companies plan for cash flow management throughout the year and keeps it regularly updated with the latest data from the ERP and P2P process. If there is a cash flow issue, start negotiating the terms with top vendors that you can prioritize based on supplier reports in your automation solution. Some are willing to delay payments or allow the payment of a large bill in installments, freeing up cash right away. 

Supplier relations is one of the areas where AP and procurement may overlap - particularly if your organization is utilizing an e-procurement solution. Work together to encourage vendors to offer more appealing terms. When AP and procurement seamlessly provide attentive communication and service with suppliers, it builds positive long-term relationships. Suppliers become more likely to negotiate and offer the best possible terms. And AP automation ensures the AP procurement teams know the updated status of every supplier account to address small issues before they become big problems. 

Getting Through the Highs and Lows 

With Q4 comes the inevitable holiday highs and lows. Will the company earn enough to get out of the red? How does the extra spending to meet holiday demand impact corporate cash flow? What are the typical KPIs tracked most closely during the holidays and are the projections positive for the current season?  
The COVID-19 pandemic has created the same sort of uncertainty, as many companies grapple with the changes in spending that the crisis has caused. The financial team and C-suite need to keep their fingers on the pulse of these variables to better manage cash flow at this volatile time of the year. While some patterns are detectable, no two seasons are exactly the same as the current financial climate plays a significant role. 

While some organizations struggle, the final quarter of the year can be quite a profitable season for many companies. A recent study revealed that one-third of small businesses find Q4 to be the most profitable season of the year - despite the higher costs. If so, use automated data to support the decision to save a portion of the Q4 profits to act as a cushion during other financially challenging times of the year. Plan ahead, so there is always money in reserve to keep the company moving forward, even if there are shortfalls in the future. 

Find a Flexible Balance 

AP automation puts key data within the instant scope of anyone on the team, regardless of location or time of day. Detecting issues before they become problems helps the C-suite find a flexible balance. For example, it might be better to work with an understanding vendor who negotiates payment terms rather than a budget one that expects payments on time or early. Know the organization’s operational hurdles and be proactive about dealing with them. 

Cash flow management skills are beneficial during Q4, and the rest of the year. A few simple strategies establish a foundation for success, including: 

  • Use historical and current data from AP automation tools to make accurate cash flow projections to establish a corporate plan for dealing with them; 
  • In accounts payable, use electronic funds transfer to make payments to vendors on the last day they are due to hold on to the cash and use it for as long as possible; 
  • Closely examine accounts receivable and look for ways to make improvements, and derive ideas from AP solutions; and 
  • Have a plan ready to execute in case of shortfalls or unforeseen financial crisis to avoid last-minute decisions based on panic rather than logic. 

Accounts payable plays an integral role in supporting financial management. The data compiled by AP automation can be analyzed by the AP team to provide crucial strategic support to the C-suite. Nobody wants to work longer hours than necessary. By using AP automation, e-procurement, and savvy planning, you can enhance cash flow management, improve overall operations, and alleviate some of the stress that comes with challenging financial times. 

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