CFOs Find Working Capital Hiding in Every Payment

The next working capital lever for chief financial officers may not require renegotiating supplier terms, borrowing more cheaply or squeezing additional days out of days payable outstanding. It may already be embedded in the payment decision itself.

“At the end of the day, AP is responsible for the largest liability of corporate cash for most companies, right? But it’s never been viewed as a strategic lever operationally for those companies,” Court Toomey, senior vice president and head of Commercial Payments and Product at Priority Commerce, told PYMNTS.

The existing accounts payable model of paying the right invoice in roughly the right time frame, and at the right-est possible cost, made sense when payment choice was limited, cash visibility was poor and the operational burden of processing invoices overwhelmed most attempts at transaction-level optimization.

But those constraints are fading.

“AP sits at the intersection of cash, suppliers, payments, relationships,” Toomey said. “And so larger enterprises are starting to understand and realize—and it moves down-market too for mid-markets and small businesses—how strategic that AP function can be.”

Smart CFOs Are Moving AP From Automation to Optimization

Integrated payables, virtual cards, richer enterprise resource planning data, artificial intelligence-assisted analysis, and faster domestic and cross-border rails are giving finance teams more control over how obligations are settled. The implication is bigger than AP automation. Each payable can be treated as a liquidity, financing and supplier management decision.

“A lot of clients are looking at the cost of the payment, and then what working capital benefits can be achieved from that payment modality,” Toomey said. “Yes, there might be a cheap option that gets the payment there and posts in two business days. But is that truly strategic to have a manufacturing order released for shipment? Or to have a freight provider deliver those goods at port?”

Paying early might capture a discount, while paying at maturity might preserve liquidity. A virtual card can introduce rebates, fraud controls and additional working capital benefits. Faster settlement may justify its cost if it releases inventory or accelerates a shipment; and when firms go global, cross-border payments can introduce another layer of foreign exchange, settlement and supplier considerations. This operating backdrop reframes a payment method from a processing decision into a capital-allocation decision.

That makes the ambition to simply “digitize AP” increasingly outdated, Toomey said. The optimal payment mix may remain heterogeneous by design.

“It’s about being smart about every dollar that leaves your balance sheet,” Toomey said. “In the past, it was always invoice, approval, payment, reconciliation, right? And now it should really be about analysis, decision-making, optimization.”

“The tools that banks are now offering, the integrated payable solutions, the add-ons that ERPs are adding, for even mid-market clients too, allow a lot more insight into what those cash positions are, what those supplier economics look like, that never existed before,” Toomey added.

The Working Capital Clock Is Getting More Precise Across Borders

The same calculations become more consequential as companies transact directly with overseas suppliers.

Within Plastiq, part of Priority Commerce’s payables business, Toomey said cross-border payments accounted for less than 5% of total payment volume five years ago. This month, they represent more than 50%.

The striking part is not simply the growth. It is how the decision framework has changed.

“It used to be what is the cheapest method to fulfill an international or cross-border payment,” Toomey said. “That’s no longer the case. It’s about what is the most strategic method.”

AP teams historically lacked the data, infrastructure and authority to make these kinds of calculations. As a result, corporate liquidity planning typically relied heavily on broad periods, such as quarter-end, holiday season, tax season and inventory build. That’s no longer the case.

“In the past, it was just always, ‘Hey, we know Q4 is busy,’” Toomey said. “Now, it’s not just Q4; it’s that first week in September, that last week in October, that first week in January.”

AP effectively becomes one of the mechanisms that treasury can use to adjust the timing of liquidity at a much finer resolution.

The Payment Date Is No Longer the Decision

As approval, execution and reconciliation become more automated, the scarce resource inside AP shifts from processing capacity to decision quality. Finance teams can analyze projected liquidity, supplier economics, early-pay discounts, seasonality and payment costs before deciding how cash should move. The endpoint is not an AP department that pays everything faster. It is one that knows when faster is valuable, when later is better and when the payment method itself can improve the economics of the transaction.

“It’s not about the approval and payment anymore,” Toomey said. “That’s going to happen automatically, regardless.”

That leaves a more consequential set of questions behind. When should the cash leave, which rail should carry it, what does the supplier relationship require, and what financial or operational value does the company receive for moving the money?

For CFOs, that reframes accounts payable from a queue of liabilities into a portfolio of decisions. The payment may be automatic. The economics surrounding it increasingly are not.

Watch the full PYMNTS TV episode with Priority’s Court Toomey to hear more about:

• Why AP is becoming a working capital decision engine. Toomey said that as payment execution becomes automated, the bigger opportunity is deciding how and when each dollar leaves the balance sheet based on liquidity, supplier economics and available discounts.
• Why the best payment rail may change transaction by transaction. Rather than forcing every supplier onto cards, ACH or another single method, Toomey said CFOs can weigh payment cost, working capital benefits, supplier acceptance, seasonality and cross-border requirements to determine the most strategic option for each obligation.
• Why payment cost can no longer be separated from operational value. In cross-border commerce especially, the cheapest rail may not be the best one if faster settlement releases inventory, triggers manufacturing or gets goods moving. That turns payment timing from an AP concern into a broader operating and supply chain variable.

For all PYMNTS B2B coverage, subscribe to the daily B2B Newsletter.