Accounts Payable Optimization: 6 Strategies to Free Up Working Capital

Accounts payable (AP) is often treated as a back-office cost center, but for mid-market companies it is one of the most underused levers in working-capital management. Optimizing how and when a business pays its suppliers can release cash, strengthen supplier relationships, and improve key treasury metrics, all without raising new debt. This post outlines six practical strategies, from process fundamentals to financing structures.

1. Automate the AP Process

Manual invoice handling is slow, error-prone, and expensive. AP automation digitizes invoice capture, invoice matching, and invoice approval, reducing late-payment penalties, duplicate payments, and the labor cost per invoice. It is also the foundation for every other strategy here: you cannot manage payment timing or early-payment programs reliably on top of a messy approval process. Strong ERP integration keeps the data clean and current.

2. Manage Days Payable Outstanding Deliberately

Days payable outstanding (DPO) measures how long, on average, you take to pay suppliers. Managing it deliberately, rather than letting it drift, is central to AP optimization. A higher DPO retains cash longer and can improve the cash conversion cycle, but stretching it unilaterally (simply paying late) can damage supplier relationships and pricing. The goal is to extend DPO through agreement or a supporting program, not by default.

3. Negotiate and Standardize Payment Terms

Inconsistent net terms across suppliers make cash flow hard to forecast. Standardizing terms where possible, and negotiating extended payment terms with key suppliers, gives treasury more predictable control over outflows.

4. Capture Early-Payment Discounts When the Math Works

Static discounts like 2/10 net 30 and sliding-scale dynamic discounting let buyers pay early in exchange for a discount. When a company has idle cash and the captured discount represents a strong annualized yield, this is an attractive use of liquidity. The caveat: it consumes cash and lowers DPO, so it suits cash-rich buyers, not those prioritizing liquidity.

5. Strengthen Supplier Relationships and Data

Optimization isn’t only about timing; it’s about reliability. Accurate supplier master data, clean procure-to-pay (P2P) workflows, and dependable payments reduce disputes and can earn better pricing and priority during supply constraints. Well-run supplier onboarding underpins this.

6. Use Supply Chain Finance to Extend Terms Without Paying Late

The most powerful AP lever for liquidity-focused companies is supply chain finance (SCF). It lets a buyer extend its payment terms while suppliers are still paid promptly through a third-party funder, resolving the usual tension between holding cash longer and keeping suppliers paid on time.

Zenith Group Advisors offers insurance-backed, unsecured accounts payable financing that lets buyers extend payment terms up to 180 days while suppliers are paid through the program, with no supplier onboarding required from the buyer. The obligation is structured to remain a trade payable rather than debt, subject to your company’s specific accounting treatment and auditor review. Indicative pricing is 0.5% to 1.25% per 30 days, and the program is designed for companies with $50M to $1B in annual revenue. See How It Works and SCF Benefits.

Bringing the Strategies Together

These levers compound. Automation creates clean, approved invoices; clean invoices enable deliberate DPO management and reliable payments; reliable payments support stronger terms and supplier trust; and a financing structure like SCF lets you extend terms without sacrificing those relationships. The right combination depends on whether your priority is deploying idle cash for yield or preserving liquidity for growth.

Frequently Asked Questions

What’s the first step in AP optimization?

Usually AP automation, because reliable, approved-invoice data is the prerequisite for managing payment timing and running early-payment or financing programs.

Does extending DPO hurt suppliers?

It can, if done unilaterally by paying late. Extending terms through agreement or a program like SCF, where suppliers are still paid promptly, avoids that harm.

Should I capture early-payment discounts or extend terms?

It depends on your cash position. Capturing discounts uses cash to earn a yield; extending terms preserves cash. Some companies do both, applying each where it fits.

How does SCF affect my balance sheet?

It is generally structured so the obligation remains a trade payable rather than debt, but the treatment depends on structure and standards and must be confirmed with your auditor.

IMPORTANT NOTE: This content is educational and not financial, accounting, tax, or legal advice. Zenith Group Advisors works exclusively with buyers through an insurance-backed, unsecured accounts payable financing program. Any balance-sheet classification depends on your facts and your auditor’s determination.

Want to extend payment terms without paying suppliers late? See how Zenith Group Advisors’ supply chain finance program works, How It Works, SCF Benefits, or Contact Us. Follow Zenith on LinkedIn.