The Two Components of Cashflow Management: AP & AR

If cash is king, then cashflow is the lifeblood of the entire kingdom. It’s also the single most important element of success for a Controller. That’s why having a clear understanding of cashflow, the processes that establish it and how to effectively manage it is absolutely imperative for any organization’s financial health.

Cashflow is essentially the heartbeat of any business. And like the human body, a business can’t properly function without a strong heartbeat. So, let’s get a clearer understanding of how to better manage cashflow by going back to the basics.

What is cashflow?

In simplest terms, cashflow is the movement of funds in and out of an organization. Positive cashflow reflects a greater amount of cash coming into a business than is going out. When cash going out is greater than what’s coming in, that means cashflow is negative (and your company’s weak heartbeat is putting your overall health in serious jeopardy).

What impacts cashflow?

There are two sides to the cashflow coin: accounts payable (AP) and accounts receivable (AR). Both play equally integral parts in establishing cashflow, and when it comes to improving cashflow management, addressing only one of these processes simply isn’t enough to create real change. The only way to do that is by strengthening both muscles: the one bringing cash in (AR) and the one sending cash out (AP).

While AP and AR seem like completely independent, siloed functions, in terms of cashflow management, they’re actually a natural extension of one another. For example, what good would accelerating the collection of receivables do for cashflow if you’re simultaneously getting hit with late-payment fees for having an inefficient AP process?

Ways to improve cashflow

Here are some simple ways organizations can improve the efficiency and effectiveness of AP and AR processes to better manage cashflow.

• Tighten credit conditions
• Speed up the processing and collection of customer payments
• Optimize the allocation of incoming cash
• Increase sales
• Capitalize on pricing/early payment discounts (AP)
• Offer customers early payment discount (AR)
• Secure loans

Automating cashflow management

Any business looking to increase cashflow needs a tool that provides full transparency into AP and AR processes — a tool like AI-driven automation. With automated AP and AR solutions, organizations can gain complete control over their cashflow and make smarter financial decisions through end-to-end visibility, accelerated collection, processing and application of payments, increased capture of early payment discounts, and tons of other benefits and features that bolster company cashflow.

Want to learn more about how automation can help you reach your cashflow goals? Check out Esker’s Accounts Payable and Accounts Receivable solutions and download this info-packed eBook!