As a finance professional in the B2B space, you have likely struggled with creating accurate forecasts of your accounts payable. In a recent survey done by PwC, it was reported that only 29% of companies feel confident in their overall cash flow forecasting abilities. While forecasting future cash outflows may seem daunting, it is possible to develop a reliable projection by considering historical data and capturing detailed invoices.
Analyze Historical Payment Data
To accurately forecast B2B accounts payable, analyze at least two to three years of historical payment data to identify trends. Track payment histories with major vendors to determine average days payable outstanding (DPO) and the percentage of on-time vs. late payments.
- Calculate year-over-year changes in spending by vendor category. Significant increases or decreases with major suppliers can distort forecasts if not accounted for properly. Adjust projections based on upcoming projects, contracts, or business initiatives that will impact purchasing.
- Evaluate payment terms for opportunities to improve cash flow. If the company’s DPO is significantly lower than the industry average, converting those payments from traditional methods to virtual card will allow the company more flexibility with cash flow.
- Review one-time or non-recurring payments from the previous year. Unless another similar payment is expected, these should be excluded from the forecast to avoid inflating projections. One-time payments can often be hard to predict and build into a forecast with a high degree of accuracy. Note any seasonal fluctuations that could impact future cash flows.
Capture Detailed Invoices
Analyzing historical payment data comes with limitations if your invoices lack information. By providing clear, itemized details of each transaction, detailed invoicing allows businesses to forecast accounts payable with precision. Detailed invoices contain all charges, including quantities, unit prices, taxes, discounts, and additional processing fees that provide the transparency necessary to reduce hidden costs. It also helps businesses forecast liabilities and negotiate more favorable agreements by providing clarity on payment terms, outstanding balances, and vendor contract performance.
Benefits of Accurately Forecasting Accounts Payable
Improved Cash Flow Management
The more educated you are on your business's payment history, the better you can anticipate your future financial obligations and manage your cash flow. Organizations can also utilize historical data to better identify challenges that may negatively impact business outcomes.
Smarter Purchasing Decisions
Accurate AP forecasting provides valuable information about your financial situation. A better understanding of past obstacles and cash flow management mistakes will help you formulate a comprehensive financial strategy, minimize late payments, and make more informed decisions.
Improved Supplier Relationships
Being able to accurately forecast your accounts payable helps improve cash flow management, allowing for timely payments. Consistently adhering to your payment terms is the most effective way to improve trust with suppliers.
Ways Virtual Card with Boost can Increase AP Forecasting Accuracy
Even with using forecasting strategies, accurately predicting your accounts payable and effectively managing cash flow can be a challenge. Utilizing virtual card for B2B payments can help extend days payable outstanding (DPO) and tremendously improve the ease of cash flow management.
Boost Intercept, our patented straight-through processing (STP) technology, provides a solution for buyers looking to improve accounts payable forecasting and extend DPO while offering added benefits to their suppliers such as end-to-end automation, enhanced reporting, and increased security. Here’s how it works:
- Instant Transaction Data
With instant access to transaction data, businesses can quickly identify and correct discrepancies, such as duplicate invoices, enhancing short-term and long-term forecast accuracy and cash flow stability.
- Automated Processing
By eliminating manual processes, Boost Intercept enables AP teams to focus on analyzing data and improving forecasts rather than processing invoices or payments. Automation also reduces human errors, such as missed deadlines or incorrect data entry, ensuring that forecasting is based on more consistent data.
- Enhanced Supplier Management
Boost Intercept provides enhanced reporting on supplier payments, providing detailed, real-time insights, allowing businesses to seamlessly track payment terms and evaluate trends. This improves the ability to predict recurring payments and spot any inconsistencies over time.
- Reduced Fraud Risk
The risk of fraud with virtual card payments and straight-through processing (STP) is significantly lower than traditional methods. Minimizing fraud risk for B2B payments helps prevent uncertainty when attempting to make an accurate AP forecast by eliminating unexpected losses and reducing the manual efforts needed to try and recover those losses.
Accounts payable forecasting requires diligence, but the payoff is immense. An accurate forecast enables improved cash flow management, smarter purchasing decisions, and improved supplier relationships. If accurately forecasting proves to be a challenge for your business and your cash flow management is suffering, Boost Intercept can help.
Ready to get started? Boost Payment Solutions is here to help. Contact us today to get started.
Boost Payment Solutions is the global leader in B2B payments with a technology platform that seamlessly serves the needs of today’s commercial trading partners. Our proprietary technology solutions bridge the needs of buyers and suppliers around the world, eliminating friction and delivering process efficiency, payment security, data insights and revenue optimization.
Boost was founded in 2009 and operates in 45 countries and territories around the world.