The general belief in accounts receivable is that AP departments don’t want to pay you on-time. There are cases where some customers have cash flow problems and their AP departments try to stretch suppliers. But, generally AP departments want to pay vendors on-time.
Here’s why AP departments want to pay you on-time.
Auditing
When vendors are not being paid on-time it triggers red flags in an audit, and makes an audit more difficult.
Red flags warn of inadequate controls and procedures and possible AP fraud. Year-end testing and verification is made more difficult and time consuming.
Late payments can also create problems with key financial ratios, and compliance with credit agreements.
AP department managers don’t want to be written up for control weaknesses, or be the reason for delays or problems with an audit.
Good Standing and Relationships
Vendor relationships are very important. They are key business partners. The loss of a key vendor can be as damaging as losing an important customer. Finding a new vendor can be difficult and costly.
Customer AP departments would not jeopardize a company’s good standing and relationship with a key vendor.
Credit Ratings/Payment History
Companies are careful not to do anything to damage their payment history and credit rating. It takes a lot of time to build a good payment history, but even longer to restore it. Companies are not going to pay vendors late and jeopardize their payment history.
A credit rating downgrade can affect your company’s ability to borrow, the cost of credit, and existing credit agreements. Customers won’t risk their credit rating in this difficult business environment.
Budgeting and Forecasting
Delaying payments can make it difficult to budget and forecast cash flow. It makes AP data unreliable for forecasting. Manual adjustments are required to adjust for the impacts on budgeting and forecasting models. Accurate cash flow budgeting and forecasting are essential as the economy recovers.
AP departments want to pay you on-time. They want to avoid audit issues, keep good vendor relationships, protect credit ratings, and accurately budget and forecast cash flow. Automation makes it possible to avoid problems and achieve these requirements. It yields benefits that increase profits and cash flow.
With a connected accounting solution for your AR and AP teams to coordinate work with customers and vendors, you can go digital and enjoy the benefits of office automation.
Lockstep, a leader in cloud-based connected accounting solutions, can help you boost productivity and optimize cash flow with:
- Digital Onboarding – Collect master data directly from your customers and vendors
- Accounting Inbox – Make it easy to divvy up work and track progress
- Smart Automation – Automate menial task with accounting integration
- Online Accounts – Give customers and vendors online access to their accounts
Lockstep is an experienced software partner that can help you increase efficiency and accelerate cash flow.
If you would like to learn more about how you can benefit from connected accounting solutions, please contact Lockstep at www.lockstep.io.
