How Automating Accounts Payable Can Help Businesses Navigate the Recession?

January 20, 23 | January 20, 2023

Businesses are facing one of the most challenging collisions of macroeconomic risks in decades — looming recession, elevated inflation, rising interest rates, and geopolitical uncertainty. Earlier this month, the World Bank slashed its growth forecasts across countries and warned of recessionary headwinds. The global gross domestic product will probably increase by 1.7% in 2023 and would be the third-worst performance in the last three decades, post contractions in 2009 and 2020. India’s GDP growth will likewise contract to 7%, below the earlier projected forecast pegged at 8%.   

Navigating economic uncertainty is challenging for businesses that are still adjusting to a new normal from previous downturns. More than ever, finance leaders are focusing on managing costs, lengthening cash runways for their organizations, and implementing strict fiscal discipline. AP departments more than ever need to play a proactive role in managing and reducing spend and maximising working capital productivity.  

Accounts payable help businesses ride these headwinds by: 

  • managing costs and optimizing working capital allocations 
  • implementing mechanisms to rigorously monitor and drive compliance with budgets  
  • enabling a real-time financial reporting system to monitor cash flow 
  • building resilient supply chains by optimizing payment terms  
  • balancing cost-saving and growth initiatives  

With increasing economic uncertainty, AP departments must bear in mind the opportunity the crisis presents to digitally transform current workflows and achieve operational excellence. A digitally organized Accounts Payable process can boost productivity, streamline processes, and free up time for employees to spend on more fulfilling, higher-value activities.  


Navigating a recession with automated AP 

Sound digitally applied account payable strategies improve productivity, resulting in more efficient financial processes, and will serve any business well—in times of economic hardship. While AP automation solutions immediately benefit accounting and finance teams, the real value is measured in impacts across the business. This includes: 

Time payments strategically  

Automated AP tools improve spending transparency. This increased visibility allows businesses to time payments to their advantage, tightening cash management Businesses can extend days payable outstanding (DPOs), and negotiate better credit terms, allowing them to hold onto cash until necessary. That does not mean paying late, which can result in fines and strained vendor relationships, but avoiding unnecessary early payments and sending cash out of the door.  

Businesses can also negotiate early pay discounts in exchange for faster payments, which contribute to improved cash flow. Rationalizing payments can help businesses free up cash that can be used to reduce the cost of borrowings and make strategic investments.  

Instil enterprise-wide fiscal discipline 

The diversity of suppliers across different departments and locations can result in duplicate spend or non-preferred vendors receiving contracts. Improved transparency around spend instills enterprise-wide fiscal discipline. Automated workflows for budget management and purchase order requisitioning allow businesses to review every dollar being spent and proactively flag unplanned and inessential expenses.  

Leveraging credit intelligently to manage liquidity 

Rising interest rates and tighter credit controls are driving up the cost of capital for businesses.  Credit card products offer an alternative way to finance operating expenses. Many Accounts Payable software vendors, including Zaggle, offer corporate credit cards to alleviate cash flow concerns. Multiple credit cards can financially cushion businesses in the event of delayed receivables and enable them to make timely vendor payments.  

The strategic use of credit products by businesses can improve cash flow. For instance, making high-value payments using credit cards can help businesses reclaim a part of the payment in the form of special, additional rebates ranging between 0.75% and 1% from issuers. In some cases, the rebates earned can cover the cost of AP automation. 

Making judicious use of payment rails 

When interest rates are high businesses might want to put cash reserves to work by investing in the short‐term money market or a bank. The decision typically depends on which option provides the best yield.  AP automation tools can support such strategies. For instance, integration with real-time payment rails allows enterprises to pay suppliers just in time, using a linked bank account or a credit card.   

Future-proofing the supply chain 

The critical difference between current and preceding recessions is that market conditions today are supply-constrained while demand shortfalls characterised previous recessions.  

Businesses need to position themselves as reliable customers that pay on time, considering the recent supply-chain disruptions. AP automation improves payment transparency, reduces errors and increases reliability. This in turn helps businesses build trust-based partnerships with suppliers and retain preferred buyer status. AP automation tools also score suppliers’ basis value and criticality, which help businesses strategically and thoughtfully renegotiate contracts, rationalise, and consolidate the supplier base in a way that positively impacts the health of the company’s cash flow.   

Improving cash flow visibility 

Businesses need to ensure they make the right spending decisions and manage and conserve cash without impacting growth initiatives. AP automation tools function as a centralized system of record for enterprise-wide spending. Reporting capabilities built into AP automation tools give businesses a real-time view into key metrics — days payables outstanding (DPOs), out-of-budget expenses, duplicate and avoidable spending, and other category reports. Businesses can use expanded analytic insights to implement fit-for-growth, cost-reduction initiatives, unearth saving opportunities, and model working capital requirements by looking at historical data for improved overall business planning.  


In conclusion 

Even prior to the threat of recession, businesses were looking to digitize and automate their accounts payables process. According to Gartner, the CFO perspective on the 2022 CEO survey digital transformation objectives remain high on the CFO priority list, with 94% of respondents reporting the need to maintain or accelerate the already-intense pace of transformation incited by the pandemic. With increasing economic uncertainty, organizations are looking to automate core financial workflows that will help them reliably navigate through a potential recession. 

AP technology investments can help companies boost productivity and reapply the time savings to reduce errors, monitor spending and identify new business opportunities. When selecting the current AP automation solution, businesses need to assess: 

  • does it simplify workflows and optimise processing cost and time 
  • level of automation supported by the tool, especially the ability to support AL and ML-based zero-touch processing 
  • payment instruments supported by the platform 
  • level of insights offered by the tool 
  • integration with existing enterprise systems 

Zaggle Zoyer, a business spend automation and embedded finance platform,  can help AP departments steward businesses through the current period of economic uncertainty, 

Request a demonstration today to learn how AP automation can help your business prepare for a recession.