Solving for B2B payables, banking and cash flow

September 30, 21 | September 30, 2021

Today, businesses are grappling with an increasingly complex operating environment. Shifting business models, disruptive technologies, evolving regulations coupled with an inflationary environment, rising interest rates and tightening credit are squeezing operating margins. And cash flow and liquidity conversations are gaining increasing importance.

In this fluid context, a laser sharp focus on cash excellence, as part of ongoing operations, is fundamental to helping enterprises achieve growth and to be more resilient.  Positive cash among other factors, demands businesses have real-time visibility and control over payables.

A critical concern is that many small to large businesses rely on error-prone spreadsheets and semi-automated or manual processes or complex applications with limited expert users for managing business spends. This approach is not only incredibly time-consuming, but it also limits agility. The distributed nature of spends made by employees at all levels across multiple line of business, suppliers and categories compounds the management complexity. At the enterprise level, the inability to tie disparate spends into a single, unified view makes it challenging to govern, manage, and plan payables and make optimum use of available working capital.

Consequentially, many enterprises often fall back on tactical short-term mechanisms to free cash flow, which can potentially layer on invisible costs that are not captured in the books. Companies, for instance, may increase days payable outstanding to better manage spends and cashflow. The approach can lead to missed early payment discounts, surcharges and interest or late deliveries and quality issues which impair supplier relationships as well as the ability to negotiate flexible payment terms in the future. This further hampers cash flows. According to the “Next-Gen Digital Payments Report,” by PYMNTS and  Transcard , 73 per cent of procurement professionals said late payments strain business relationships. Over 59 per cent also stated their suppliers have either reduced or outright stopped offering discounts because of late invoices.

Another frequently adopted measure — equal enterprise-wide budgetary cuts — to control spends appear straightforward but may not yield sustainable transformation in organizational cost structures in the long-term. Such blanket cuts can also result in lost opportunities to unlock value due to an inability to identify and eliminate spends replicated across different layers or lines of business. As a corollary, many enterprises centralise spend decisioning, curtailing employee privileges related to discretionary spend. This creates friction between finance teams and lines of business and hampers innovation and productivity.

It is increasingly important to have real-time, bottom-up transparency into payables for ensuring decision-makers have the insights to manage cash flows better. By implementing digital-first accounts payable and payment automation processes, businesses can improve control and visibility over cashflows.


Optimise cash flow management

An intelligent payables platform automates the complete payment lifecycle from supplier onboarding, automated invoice receipt, routing, approval, three-way reconciliation and payments execution with a pre integrated credit card as an option. A centralised platform prevents communication lags between relevant departments improves process efficiencies and reduces cost of processing. Research undertaken by Zaggle indicates that an average organization processes 2,000 invoices annually and the processing costs can range between US$6-US$8. Digitalising payables can reduce these costs by 90%.

With a centralised platform for enterprise-wide spends, corporates can determine precisely when and how to pay vendors to ensure maximum control over outgoing cash flow and free working capital trapped in balance sheets. For example, businesses can view payables to a single vendor across aggregated individual employee cardholder accounts and renegotiate contracts in event of excessive pay-outs. Likewise payable cycles can be optimised in line with cash inflows and future working capital needs can be predicted looking at historical spend patterns across lines of business and geographies. Organizations can also strengthen budgetary compliance by tracking out of budget spends or channelise payments through the most cost-efficient payment modes. Payables made outside of normal business regions or currencies can be identified to better plan for future budgeting cycles.


Embed instant credit in payable workflows

An important aspect of managing payables is the ability to make decisions related to financing business spends. The best run corporates need working capital loans to fund temporary and seasonal gaps in cash flows. At the same time, as many businesses have experienced recently, larger banks are tightening their credit facilities and may move cautiously for businesses in the mid-sized segment. As per a 2021 report by the Association of Chartered Certified Accountants (ACCA), the Indian MSME sector faces a credit deficit of US$240 billion.

Pairing payables with a credit card capability, enables businesses to manage as well as finance supplier payments. Corporate credit cards easily integrate into the payables system to provide simple card management that enables program and individual account managers to define spend limits. For example, companies such as Zaggle offer mid-sized corporates facing a liquidity crunch an instant line of credit to meet payment obligations, take advantage of prompt payment discounts and avoid overdue payment fees. Additionally, corporates with significant invoice volumes using credit cards as a payment instrument can earn cashbacks and rebates enabling them to lower overall invoice processing costs. As rebates grow along with the business — corporates have more spending capital as business operations expand. As a company generates more revenue for a bank with frequent use of a corporate credit card, the bank might enhance its earnings credit rate to help lower overall banking costs.


Multi-rail payment capabilities for improved controls

Embedded multi-payment rails into accounts payable workflows, providing better control over cash flow and liquidity. As an example, business can avail a larger volume of early-pay discounts when interest rates are low or use real-time payment rails (Unified Payment Interface) to make just in time payments when interest rates are high. In addition, digital payments improve auditability and alleviate reconciliation overheads.


Institutionalise culture of fiscal discipline

Driving sustainable working capital performance improvement requires a cash conscious mindset throughout the organisation. Significantly, an ability to track and monitor enterprise-wide spends against budgets helps executives focus on strengthening the cash culture across organizations and implementing a no-regrets moves to empower employees with spend decisioning. Payables automation software supports advanced management workflows for purchase order and invoice approvals. Businesses can define clear accountabilities and assign spend decisioning rights to frontline employees with an effective supervisory and monitoring structure up to the CFO for high value spends with significant implications on cash.


Enhance business relationships with suppliers

An ability to view payables positions at a per vendor level brings increased transparency into the negotiation and invoicing process and improves supply chain efficiencies. Corporates can foster collaboration between enterprises where friction once reigned and negotiate better contractual terms whilst vendors benefit from improved visibility, taking the anxiety away with improved predictability of payments.

Accounts payable plays an integral role in day-to-day financial management. By digitalising payables, high-velocity growth businesses can rationalise costs and accelerate invoice processing cycles and sweat working capital better – thereby streamlining overall cash flows.