It’s no longer enough for CFOs to be a financial scorekeeper for the business.
Businesses expect their CFOs to devise strategies to help drive profitability and growth.
CFOs are discovering an answer to this challenge in what some might consider an unlikely place: the accounts payable department. Although many people perceive accounts payables as a costly and tactical back-office function, the function unpins many working capital choices. It is for this reason that more CFOs are automating accounts payable as part of their initiatives to improve profitability.
Electronic payments are critical to improving corporate profitability through accounts payable.
5 ways electronic payments improve profitability
Electronic payments support corporate profitability in five ways:
1. Better profit margins through lower operational costs: Electronic payment methods are dramatically faster, more efficient, less expensive, and less prone to fraud than paper checks. Electronic payments also can be tightly integrated with a buyer’s current bank partner.
2. Fewer late payment penalties: Electronic payments such as ACH and virtual cards ensure timely payment of invoices and fewer late payment penalties that chip away at profitability. Manual processes create a bottleneck that stops payments from going through on time.
3. Less costly borrowing: Certain card programs enable buyers to instantly extend their Day’s Payable Outstanding (DPO), in many cases by three weeks or more, without changing their payment terms to suppliers. Extending DPO frees up cash, in turn, helping the business reduce costly borrowing, invest in research and development, and support growth initiatives.
4. Lower net cost of purchases: Paying suppliers electronically makes it easier to attract and retain suppliers and provides buyers with leverage at the negotiating table with suppliers. The reason suppliers are so bullish on electronic payments is that ACH and virtual cards are easier to reconcile than paper checks, provide transparency that eliminates the need for calls or e-mails about the status of payments, and offers rich remittance data for easier posting.
5. More early payment discounts: Paying suppliers electronically makes it easier for buyers to capture lucrative early payment discount offers from suppliers. Early payment discounts typically average 2 percent, but many buyers routinely capture much higher early payment discounts. The earlier the payment, the larger the discount on the amount due on an invoice. The early payment discount options available with some electronic payment methods are especially appealing to small and mid-sized suppliers with tight or “lumpy” cash flow.
Each of these benefits is compelling. Together, they help CFOs drive significant improvements in profitability and business growth.