Paying AP Invoices: Improved Cash Flow and Early Payment Discounts

While optimizing the accounts payable method, you may think which is better for your company: pursuing early payment discounts from the vendors or holding onto business cash for a long time. It is common sense to pay bills on time. Specifically, when the business continues to evolve, the number of suppliers you are working with will grow as well. It means you need to process and pay more invoices. Having a list of unpaid invoices/bills can have a negative impact on the business’s profitability and hinder the relationship between you and your vendors.

When you are working hard to pay invoices on time, remember that the vendors may provide a discount in exchange for paying the invoices early. The other option is to continue holding onto cash unless the payment due date. Why you must select one or the other? Here we present the mandatory steps to state when it is the best time for your company to pay vendor invoices.

Early Payment Discounts in Accounts Payable (AP)

Purchasers may get early payment discounts in exchange for paying vendor invoices before the due date. A business pays less than the complete amount, and the vendor receives payments earlier than they normally would, and it’s a win-win. For the vendors, a benefit to an early payment discount is that they are paid quickly than they typically would be. Hence, it speeds up the cash flow. Plus, when vendors provide early payment discounts, they are rewarded with more business.

On the other side, the buying organization benefits from the early payment discounts if their main goal is to decrease the expense of services and boost supplier relationships.

Streamline Cash Flow in AP

Money is one of the significant metrics of a business’s financial performance, and it is the amount of cash entering/leaving your business. Without proper cash flow, your business may struggle to pay on time bills and generate a poor supplier relationship. Maximizing cash flow starts with streamlining an AP solution. On a balance sheet, AP is recorded as a short-term liability. But over time, if such liabilities are not managed accurately, then it can have a massive impact on the cash flow.

But when the accounts payable software is optimized and automated, there is the main place for all pending invoices. The paperless approach enables users to schedule payments and authorize invoice approvals easily with a single click, thus resulting in fewer missed payments and making sure that the payments get executed using the accurate method. With accounts payable automation, there is no need for printing and signing checks, invoices are paid timely, and vendor relationships are enhanced.

Here are the key ways a cloud-based accounts payable solution aid in streamlining the business cash flow.

a) Be on top of payments that you owe vendors so that you are aware of the cash on hand.
b) Accelerate the invoice processing and prevent late fees and labor expenses using automation.
c) Schedule when the payments go out so that you can have control when the cash leaves your business easily.
d) Granular insight into the AP method and check invoices that go into the solution in real-time.

Best Accounts Payable Processing Considerations

To make a decision on whether to take advantage of the vendor’s early payment discounts or holds onto money for a longer period than warranted, you must ask yourself the following questions.

a) How quickly do invoices arrive at the AP team?

If invoices arrive in various formats and are directed to several team heads who don’t instantly forward them to the AP department, it may not leave the AP team with adequate time to go via the steps needed to process the invoices on time. If it is the case, then it isn’t possible to take advantage of the early payment discounts.

b) Is your business’s purchase order process optimized?

An optimized invoice matching method enables your AP team to compare details on the invoice quickly with the supporting documentation, such as receipts, PO, and vendor contracts to guarantee accurateness. The faster the process is, the faster you can finalize payments. It leads to better cash flow.

c) Do you know the state of your finances?

Look at the present state of your business finances and how much more cash you have on your hand. At times, it is simply not good to pay the invoices early. For instance, you require the cash for future plans or to meet business objectives. In this situation, it makes sense to pay right on time.

Paying timely invoices is critical to sustaining excellent cash flow and robust vendor relationships. Taking time to consider the right invoices method for your business, whether it involves using an early payment discount or deploying a paperless invoice solution. With the help of automated AP software, the traditional factors of invoicing are eradicated, aiding your AP team to better handle their time and incoming invoices so that the payments are paid on time.