In today’s highly competitive business environment, accounts payable (AP) and accounts receivable (AR) departments must find ways to improve corporate profitability and overall financial health. Managing working capital effectively is one way to do this.

Working capital management ensures companies have enough cash to meet short-term debt obligations and pay day-to-day operating expenses. Positive levels of working capital generally indicate a company is financially sound and has enough liquid assets to cover immediate expenses. Even though working capital management is one of the most important financial processes in organizations both large and small, many companies struggle with it.

Here are three common flaws that derail companies’ working capital management strategies:

1. Overreliance on Manual, Paper-based Accounting Processes:

Manual, paper-based processes plague modern AP and AR departments. These processes are not only costly and extremely inefficient, but they make it difficult to capture discounts, track financial progress and history, and handle vendor inquiries and disputes. By switching to an e-invoicing and ePayments solution, you can dramatically improve efficiency, performance and automation. With an e-invoicing solution, you can manage supplier relationships, invoice processing, and AP and AR workflows from a single, easy-to-use interface. You can also speed up invoice processing cycles from an average of 23 days down to just five. This can lower labor costs associated with manual data entry and free up time for your staff to focus on core competencies.

2. Missed Discounts:

Discount capture can translate into huge annual cost savings for organizations. In most cases, a buyer can obtain a 2 percent discount on an invoice by submitting payment early. While the majority of AP professionals identify discount capture as a top organizational priority, most companies are ill equipped to capture all supplier discounts, according to a study we did with PayStream Advisors. In fact, only about one-fourth of companies are able to capture discounts effectively. E-invoicing enables companies to capture more discounts from suppliers by ensuring they meet early payment deadlines. It also gives companies the opportunity to explore alternative payment methods, such as supply chain financing, which can yield greater returns on investment than are possible with traditional money market accounts.

3. Failing to Involve Leadership from Other Departments:

The finance team shouldn’t be the only department involved in managing working capital. To be successful, companies need to engage senior leaders in other departments across the organization. This includes customer support and delivery reps, HR staff and technical teams, among others. Unfortunately, many managers outside the finance department perceive working capital management as a secondary priority or even in conflict with other departmental goals, but the reality is that working capital management should be a holistic endeavor. Companies can increase participation by educating managers on the importance of working capital management and measuring progress against key performance indicators (KPIs).

Companies that avoid these mistakes will create more effective working capital management programs that drive real gains in financial performance. Paybox’s platform is an all-in-one e-invoicing and ePayments solution that helps companies automate processes and improve financial operations. With comprehensive tools and interactive reporting capabilities, Paybox provides greater visibility into working capital levels and improves decision making. For more information or to schedule a personalized consultation, give us a call at (613) 873-2909.