Examining how to turn AP departments into revenue centers and sources of strategic advantage.

Leveraging AP to Increase Days Cash on Hand: It's About More Than Just Float

Many bank electronic disbursement programs place a heavy value on the float they offer (i.e. they pay your suppliers 10-30 days prior to when you reimburse them for those payments). Float is valuable; however, it is only as valuable as the volume of payments you run through your electronic payment program. In other words, if you have low supplier participation--either due to poor or infrequent supplier onboarding, or the lack of electronic payment methods you can offer suppliers--then the float will not significantly improve your cash position.

Another important factor in increasing days cash on hand is the standardizing of payment terms. Payment services providers can provide you with an analysis of all your supplier relationships, including documenting any contractual terms you may have. In doing so they can recommend an organization-wide payment term policy that will enable you to increase your days payable outstanding, and in turn your days cash on hand.