Why Accounts Payable Matters More Than You Think

ANNOUNCER: Welcome to the Cherry Bekaert Industrial and Consumer Goods podcast series. We aim to explore this dynamic world, discuss the operating challenges facing manufacturers, and offer new ideas and solutions. Join us as we uncover growth strategies and enhance after-tax cash flow in the ever-evolving industrial and consumer goods landscape.

HOST: COREY YORK: Hello and welcome back to another installment of our Industrial Manufacturing and Consumer Goods podcast series. I'm your host, Corey York, a finance strategy and operations professional at Cherry Bekaert, long-suffering Cleveland Browns fan and junk food appreciator. Joining me once again is my colleague, Mike Piotrowski, finance transformation leader with two decades of experience helping CFOs and private equity owners unlock working capital and modernize their finance function.

HOST: COREY YORK: On this episode, we're flipping the script to focus on the other side of the balance sheet: accounts payable optimization. AP is much more than a routine task. It's a direct reflection of your company's financial discipline.

HOST: COREY YORK: When it's managed strategically, it can dramatically improve cash flow, strengthen supplier relationships, and unlock hidden value. But when it's not, it becomes a major source of friction and a drain on your profitability. We're going to dive into the challenges, reveal the hidden opportunities, and show you how to transform your AP function from a cost center into a strategic advantage.

HOST: COREY YORK: So, Mike, thanks for joining me again. We've recently covered accounts receivable, but for many businesses, accounts payable is the larger and more complex piece of their working capital puzzle. Why is it so important to get it right?

MIKE PIOTROWSKI: Well, thanks again for inviting me, Corey. We've talked about accounts receivable as the heartbeat of cash coming in. If that's the case, then accounts payable is the gatekeeper. It's the guardian of cash that flows out of the business.

MIKE PIOTROWSKI: While AR is about collecting what you're owed, AP is about controlling what you owe to others. It's the money you spend to keep the lights on and to keep the supply chain moving. When you don't manage AP effectively, you're not just paying bills; you're introducing risk to your business.

MIKE PIOTROWSKI: A clunky, inefficient AP process can lead to missed opportunities for discounts, costly late fees and penalties, and even creditworthiness risk with key suppliers. Suppliers often report payment history to credit bureaus, and a poor payment record can harm your company's credit rating. In the worst cases, it can trigger unfavorable clauses in contracts, increasing your costs and putting your supply chain at risk.

MIKE PIOTROWSKI: Therefore, when you optimize AP, you're not just processing invoices; you are strategically managing your cash position and building stronger, more profitable partnerships.

HOST: COREY YORK: What are the telltale signs that a company's accounts payable process needs a serious overhaul? What metrics or red flags do you look for?

MIKE PIOTROWSKI: The warning signs often surface in the numbers and in day-to-day operations. The most telling financial indicator is a high days payable outstanding, or DPO. This metric tells you how many days it takes your company to pay its suppliers.

MIKE PIOTROWSKI: While a higher DPO can sometimes mean you're holding on to cash longer, an inconsistent or excessively high DPO can be a sign of a chaotic, inefficient process. Beyond the numbers, you'll see operational warning signs like a growing stack of paper invoices that must be manually entered, finance staff spending countless hours chasing approvals, repeated late payments even when you have sufficient cash on hand, and a high volume of supplier disputes due to billing errors or lost invoices.

MIKE PIOTROWSKI: Finally, a lack of centralized visibility—meaning no one can easily see the status of an invoice or when payment is due—is a major red flag.

HOST: COREY YORK: So, let's talk about solutions. What are the main levers a company can pull to improve their accounts payable performance and get a better handle on their cash flow?

MIKE PIOTROWSKI: It can feel overwhelming, but we found four levers that drive the most impact. Each one is a critical piece of the puzzle, and when they're all working together, the real magic happens.

MIKE PIOTROWSKI: First, centralize and streamline your processes. This is the foundation. It's about having a clear, standardized workflow for every invoice from the moment it's received to the moment it's paid. For example, a best-in-class company might have a single email inbox for all invoices and an automated routing system that sends the invoice to the right person for approval every time.

MIKE PIOTROWSKI: Second, eliminate manual data entry. This is about getting it right from the very beginning. Manual data entry is slow, expensive, and a major source of errors and potential fraud. Implement technologies like optical character recognition (OCR) that can automatically scan, read, and populate invoice data into your system, reducing human error by up to 99 percent.

MIKE PIOTROWSKI: Third, implement smarter payment strategies. Instead of paying every invoice immediately, use dynamic payment scheduling to hold on to cash longer while still paying suppliers on time. For your most valuable suppliers, take advantage of early payment discounts, which can amount to a significant return.

MIKE PIOTROWSKI: Fourth, optimize the use of technology. Automation is the key enabler. OCR automatically extracts key information from invoices, reducing manual effort. Once an invoice is in the system, workflow automation routes it to the right person for approval, and three-way matching automatically compares the invoice, purchase order, and receiving report to ensure accuracy. This frees up the finance team to focus on strategic tasks instead of processing paper.

HOST: COREY YORK: These strategies sound comprehensive. I imagine some listeners fear damaging relationships with suppliers by changing payment practices. How do you balance strategic accounts payable with keeping partners happy?

MIKE PIOTROWSKI: It's a legitimate concern, and AP optimization isn't just a finance exercise—it's a supplier relationship issue. The key is to shift the mindset from confrontational to collaborative. For your most valuable suppliers, don't use a one-size-fits-all automated approach. Instead, take a soft, strategic approach and have a conversation.

MIKE PIOTROWSKI: Bring in a senior finance leader or a supply chain manager who has a strong relationship with the supplier. The conversation should be empathetic: explain that you value the partnership and that you're implementing a new process for managing accounts payable. Work together to find a solution that fits both parties, which could lead to a more flexible payment plan or an early payment discount for those who pay on time.

MIKE PIOTROWSKI: The goal is to set clear expectations and reinforce that this isn't a punishment; it's a way to build a healthier, more sustainable partnership. A clear policy, applied fairly, removes ambiguity and strengthens trust over time.

HOST: COREY YORK: Let's get specific. Could you walk us through a simple scenario to show the true impact? Take a company with $600 million in COGS annually and a current days payable outstanding of 45 days. How much cash is locked up there, and what happens if they can improve it?

MIKE PIOTROWSKI: Great question, Corey. If a company has $600 million in annual COGS, that's roughly $1.64 million in spend per day. With a DPO of 45 days, they're holding about $73.9 million in accounts payable at any given time. That's the cash they're using to float operations before paying suppliers.

MIKE PIOTROWSKI: First scenario: hit the median benchmark. If they improve DPO from 45 days to 60 days, they'd unlock an additional 15 days of float, which is approximately $24.6 million in newly available cash. This is not dilutive capital—no debt, no equity—just smarter operations.

MIKE PIOTROWSKI: Second scenario: become a top performer. If they push DPO to 75 days, common among top-quartile performers, they unlock 30 more days of float beyond their current state. That's $49.3 million in working capital, which is a game changer. It's enough to fund a major initiative, reduce debt, or build strategic reserves.

HOST: COREY YORK: You talked about benchmarks—top performer, median, top quartile—where do these benchmarks actually come from?

MIKE PIOTROWSKI: These aren't arbitrary numbers. They come from aggregate financial performance data of thousands of companies compiled by organizations like the American Productivity and Quality Center (APQC) and various credit and financial institutions. That gives us an objective measure to compare company performance against peers and helps identify real, achievable targets for unlocking cash.

HOST: COREY YORK: That wraps up today's episode on accounts payable optimization, a critical driver of cash flow and overall business health. Mike, thanks again for sharing your expertise with us today.

MIKE PIOTROWSKI: You're very welcome, Corey.

ANNOUNCER: Thank you for listening to our podcast today. For more information, visit our website at cbh.com/manufacturing, where you can give feedback and connect with our professionals.

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