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In this guest post, Procurement Leaders invites American Express’ Brendan Walsh to look at how smarter purchasing decisions can influence cash management.
Cash is the lifeblood of any business. Although often not a company’s primary focus, optimising cash is a key driver of value creation. In fact recent industry figures estimate that European companies lost billions last year due to late or unpaid bills and that the UK’s bad debt losses are rising.
Yet a good procurement department can negotiate terms and use systems that protect their company against this, ultimately freeing up working capital that can be invested for growth.
Working capital management is an organisation-wide challenge. So what can procurement leaders do to support cash flow within their company?
Sourcing decisions made by procurement leaders have an especially large impact on a firm’s cash position. And the company’s ability to honour supplier invoices is critical to maintaining essential relationships and a fully functioning supply chain. Simply negotiating more favourable payment terms with suppliers is likely to damage valuable relationships and only serves to force liquidity issues down the supply chain, but there are solutions that benefit both parties.
For a procurement department, by using a corporate card allows the buyer to negotiate to pay suppliers within around five days, while the firm then works to standard payment terms of up to 58 days. This has two benefits – the first, being that it enables a company to free up working capital and secondly that they can negotiate better terms by telling suppliers they will pay them far quicker than standard payment terms.
These systems can also enable a company to gain better visibility of business expenses, which again can lead to better terms being negotiated. Even in the current climate, there are still many companies that do not have a proper expense management system in place, which means they could be leaving valuable saving opportunities on the table, especially when you consider that in the UK alone indirect expenses account from some $300 bn, according to American Express ATKearney research into indirect expenses.
In today’s business environment where "cash is king”, companies can potentially free up huge amounts of working capital by better handling supplier payments.
Brendan Walsh is senior vice president of American Express Global Corporate Payments Europe.