How Faster Approvals Improve Cash Flow

Your business runs on cash flow. Solid cash flow means you can pay your bills, pay your employees, and grow your business. Having to pay a stack of bills at once because you couldn’t get the invoices approved strains this valuable resource. 

Making changes to your approval process lets you refine your cash flow management, which is important when paying multiple vendors. Accounts payable cash flow improvement could be as simple as reducing your invoice approval time.

Why Approval Speed Shapes Cash Flow

A consistent invoice approval process makes cash flow more predictable. Your financial team can adjust budgets around regular payments and control spending as needed. 

If your invoices sit in an inbox for weeks before they are approved, you’re delaying your payments. Your accounts payable team must field calls and emails from vendors and track down approvals. A speedier approval process gives your team the flexibility to make timely payments and take advantage of early payment discounts.   

Allowing your managers to get into the habit of approving invoices in bulk can also disrupt cash flow management. You end up paying everything at once, which prevents you from using cash for other purposes. 

How Delays Impact Discounts and Vendor Trust

Some of your vendors improve their own cash flow by offering early payment discounts as an incentive. Manufacturers, equipment suppliers, and other vendors offer multiple types of discounts to their customers who pay early. They might give you a fixed percentage if you pay in a specific time period. 

For example, a supplier might offer a 1.5/10 net 30 discount, which means that you save 1.5% if you pay within 10 days. For a $2,500 invoice, this equals a $37.50 discount. It might seem small, but these discounts add up, giving you more cash to work with. 

Paying late has the opposite effect. Instead of becoming your vendor’s favorite customer, you get a reputation as the one they have to contact multiple times a month for payment. Everyone makes mistakes, so paying late a couple of times probably won’t sour a vendor on your business. Do it too often, and they might withhold their services or supplies. They may even end the relationship. 

Some vendors will also refuse early payment discounts to customers who consistently pay late. 

Predictability vs. Reactivity: Why Timing Matters

Paying invoices on time every month makes for smooth financial forecasting. Your accounts payable team knows exactly how much money is going out every month. They can plan for growth, develop strategies for weathering economic downturns, or invest in the business. 

Consistent on-time payments also make your company more trustworthy to lenders. You can potentially lower your interest rates and negotiate better terms with your vendors. All these actions improve your cash flow.

Slow invoice approvals and late payments mean you’re reacting to situations as they arise instead of carefully planning for the future. Without the predictability that comes with a smooth invoice approval process, you risk unexpected expenses or cash flow emergencies that impact other parts of your business. 

For example, financial planning lets you save money in an emergency fund. If one of your machines breaks unexpectedly, you have the resources to cover the cost. If you’re operating reactively, you will likely have to shift money around to cover these one-time expenses. 

Real Numbers That Show Faster Approvals Equal Stronger Cash Position 

There is evidence to prove that approval speeds impact cash flow. Around 88% of businesses using ACH to pay their bills report financial growth. Additionally, 89% of companies say paying their invoices faster has improved their relationships with suppliers. 

When you pay your bills late, it impacts your suppliers’ cash flow. In 2023, construction businesses lost approximately $273 billion due to delayed payments. 

The Connection Between AP Efficiency and Better Forecasting

AP efficiency saves you money through early payment discounts, lower interest rates, and better vendor relationships. It also helps you manage your budget. Your AP team can plan for early payment discounts and anticipate large payments. 

Automating accounts payable with WorldView’s AP Workflow Automation also improves visibility into your cash flows. You'll see dashboards that show where your money went each month, which helps your team plan proactively for the next billing cycle. Schedule a demo to learn more. 

This tool automatically imports invoices from email and other systems, routing them to the appropriate person for approval. It also automatically routes invoice exceptions. 

What Finance Teams Can Measure Before Next Year’s Budget

If your invoice approval process needs improvement, take steps to fix it. Start by measuring your operating cash flow and the average number of days your accounts payable are outstanding. Gather data on how long it takes to approve the average invoice and look for signs you’re consistently paying late. 

Use AP automation software to shorten your invoice approval processes. Then, review vendor terms and conditions to determine if any early payment discounts are available. With these strategies in place, you can improve cash flow management over the next year.