Optimize Cash Flow With Smart Accounts Payable Strategies

To some, the question “What’s your AP strategy?” might sound silly. Making sure bills get paid seems straightforward enough, but how strategic can cutting checks be?

At its core, the accounts payable (AP) function ensures that your business’s bills are paid. But when thinking about it more strategically and aiming to impact NOI, AP isn’t just about paying bills — it’s about managing spending and expenses. AP becomes exponentially more complex when transaction volumes are high and factors such as late payments, vendor management, cash flow, and fraud come into play.

This year, AppFolio customers have more outstanding invoices than in previous years, highlighting the industry’s increasing challenges with optimizing cash flow. Additionally, with stubbornly high interest rates and inflation hindering operators’ ability to grow — and in some cases, even affecting normal operating processes — many businesses are exploring ways to maximize cash on hand as a way to optimize property performance and capitalize on investment opportunities in a challenging market.

The Concept of Cycle Time

Cycle time measures the number of days it takes to process a bill, from receiving the invoice to scheduling the payment. A shorter cycle time helps paint a true picture of the money owed, so you have a better understanding of your cash flow and can make smarter decisions about applying your cash on hand against additional opportunities.

AP benchmarks indicate that top-performing companies complete the AP cycle in 2.8 days or faster, while bottom performers take a week or longer. Do you know your current cycle time or how you could shorten it? Quick cycle times are ideal, and layering strategic payment terms on top can enable you to capitalize on early payment discounts, avoid late fees, and optimize investment opportunities — all of which reduce costs and enhance profitability.

Let’s take a deeper look at this strategy for achieving healthy cash flow by discussing how to find your sweet spot for invoice entry, approvals, and payment timing. By focusing on speed and accuracy for bill entry, efficiency of the bill approval processes, and the optimization of payment terms and timing specifically for your business, you can transform your entire AP operation from reactive to proactive.

Dominate the Bill Entry Process

The foundation of this strategy is bill entry. Consider how bills are currently entered into your accounting system and the volume of bills you receive. On average, AppFolio customers enter over 3,000 new bills per month. Due to this high volume, speed and accuracy are critical. If your team is still manually keying in information, it’s time to think about automation and AI, which have become quite prevalent in AP and invoice processing in particular.

Today’s technology can receive, read, and code invoices on your behalf for your approval and even find and flag potential duplicate invoices. AppFolio Smart Bill Entry has processed more than 56 million invoices on behalf of our customers. This includes reading incoming invoices, extracting pertinent data, and automatically mapping it to the correct fields in your database. By adopting Smart Bill Entry to eliminate manual data entry and the associated errors and inconsistencies, one AppFolio customer reported that their business has experienced a 50% reduction in invoice processing time.

We’ve recently enhanced Smart Bill Entry with a new settings page where you can add more automation, even beyond what appears on an invoice. For example, if you prefer to have the account number included in the check memo for utility bills, you can add that condition in your Smart Bill Entry settings so it automatically happens every time. Current AppFolio customers can find more information here.

Use Bill Approvals as a Strategic Lever

While automation and AI can help improve the accuracy and validity of entered bills, your bill approval process ensures that you have ultimate visibility and control. Without approved bills in your system, you lack a true picture of what is owed, making it difficult to accurately forecast your cash flow and impacting your ability to pay bills on time and opportunistically invest in growth.

Setting up logic or workflows to dictate how a bill moves through your AP process is a key step toward making your approval process more efficient and finding that sweet spot. Consider whether everything needs to be looked at by the team. Are there cases where a bill could be automatically advanced to the next step based on an established set of criteria?

To bring the AP process into the future, we’re making significant improvements to the bill approval process that will allow you to accurately approve bills in a matter of minutes instead of hours. As a part of Realm-X Flows, a workflow automation engine available this fall, you’ll be able to create different bill approval flows based on criteria such as the bill amount, the associated property, the vendor and vendor type, and whether the bill amount is within the approved scope of a budget, work order, or purchase order. Building and running these standardized workflows will improve consistency, accuracy, oversight, and ultimately, operational efficiency for our customers.

Get Smart on Payment Terms

When your AP process is running smoothly, you’re able to track and pay bills on time. Not only does this help you avoid late fees, it also empowers your team to develop good relationships with your vendors. With solid relationships, the likelihood that your vendor is willing to negotiate favorable payment terms is higher.

For example, if you normally have 30 days to pay a bill, see if you can negotiate a 45- or 60-day term. This nuance will increase your cash flow and create more opportunities for that opportunistic investment.

We’ve also seen customers delaying payments for 90 days after the due date of the bill, which requires that they have very accurate data capture. This approach could maximize cash flow but can have a negative impact on vendor relationships.

Finding the perfect balance between paying vendors promptly to maintain good relationships and delaying payments to maximize cash flow is challenging, but one way to start is by analyzing all your recurring payments to determine your contract terms. Keep track of when you last negotiated those terms, the contract end date, and when you shopped around with other vendors. Use this data to proactively manage your AP payment terms to improve your cash flow.

Finally, don’t forget to think about your payment mix. Paying with cash means you’re immediately surrendering those funds, while paper checks give the vendor control over when the payment is cashed — however, neither is ideal. As a property manager, you should maintain control over when money is actually leaving your account, and the best way to do this is by paying with a direct ACH transfer or credit card.

The Future of AP at AppFolio

The average customer using AppFolio AP solutions is ahead of the industry standard for cycle time — at about 1.5 days. We believe an accounting system that allows your team to move quickly yet precisely is essential to achieving this high performance. It’s also key to freeing your teams and leaders from the busy work bogging them down.

Our vision is to continually refine and simplify the AP process for our customers, enabling seamless navigation from invoice creation to payment via customizable workflows. This allows you to control the level of automation, ensuring it suits your team and your business needs. Whether or not you’re currently an AppFolio customer, we hope this article gave you some ideas for steps you can take today to start thinking more strategically about your AP flow.

If you’re interested in learning more about opportunities to automate your accounting processes and how to manage the associated changes, we hope you’ll join us October 28th to 30th in San Diego for FUTURE — The Real Estate Conference by AppFolio. We’re planning three days of insightful breakout sessions, training and product demos, and various opportunities to network with industry peers and technology partners.