Sales teams can leverage working capital to negotiate better payment terms. For example, discounts to fast payers can be offered, in recognition of the contribution they make to improved working capital.
The challenge is that unilateral action on working capital is rarely recommended. Moving payment terms to suit one’s own enterprise impacts on trade partners, by reducing their working capital. What is needed is a solution which helps both parties. A solution by American Express can achieve this, granting both sellers and buyers improved payment times simultaneously.
Here’s how it works. The supplier identifies key customers and arranges for them to use the American Express credit line. Upon receiving an invoice, the buyer provides approval to their supplier who then draws down the funds on their account, receiving them within five banking days. The buyer then pays American Express, in up to 55 days.2 The process means the supplier gets bills paid promptly. And the buyer gets an improvement to days payable, helping cash flow.
The contribution to working capital is obvious. There is also a long list secondary benefits. Sales managers benefit from better relationships with clients. Instead of putting accounts on hold due to payment irregularities, the sales team can concentrate on driving growth or growing relationships.
The finance team is one the biggest beneficiaries. Reliance on overdrafts can be reduced. This transition to a precise payment schedule means the finance team can construct cash models to a new level of accuracy. As working capital improves, the stress of a cash crunch should recede.
The PWC report on working capital finds a correlation between slow invoice settlement and inefficient finance departments. It says, “Analysis of accounts receivables performance shows that organisations with higher days sales outstanding typically spend one and a half times as much on their accounts receivable processes, and deploy twice as many people to manage them.”1 The smooth processes of Working Capital Solutions can simplify receivables. This liberates the credit team to focus on other customer areas or debits.