• PE-backed CFOs must strategically manage cash out-flows to service debt and maintain liquidity.
  • According to APCQ research, labor costs account for roughly 62% of total AP costs. High levels of manual intervention are a sign of a wasteful payables process.
  • Enabling an efficient 3-way match can enhance payables performance.
  • PE-backed CFOs should strive to negotiate longer terms upfront rather than develop a reputation as a late payer.

Company-wide clarity on payment timing, required sign-offs, and proper coding of expenses is tables stakes for the PE-backed CFO. Payables dysfunction can harm vendor relationships, restrict liquidity, and cause constant troubleshooting of financial results. Sponsors have little tolerance for these missteps.

Savvy CFOs observe several best practices to maximize AP performance.

Seek to Negotiate Rather Than Pay Late

When cash gets tight, CFOs often aim to service debt and preserve liquidity by throttling down the velocity of other payables.

While this tactic may prove practical in select scenarios, habitual late payment carries consequence. Financing a business on the backs of your suppliers inevitably leads to harsher terms and higher prices.

Finance chiefs should truly consider the terms of payment before entering any new agreement. If their company’s cash cycle renders them unlikely to pay by the proposed date, they should pursue an alternative. If a vendor proposes a net 30 contract but the CFO’s cash cycle will push that payment closer to net 45, for example, they should suggest those terms upfront.

This strategy benefits all stakeholders:

  • Both buyer and supplier can better manage their cashflows.
  • The payables team is spared from harassment associated with overdue payments.
  • The company preserves the trust of the vendor, which positively influences the terms and quality of future agreements.

Vendors do not want to lose business, which frequently makes them amenable to reasonable solutions. Strong cash flow forecasting enables a PE-backed CFO and their team to have more of t...