Cash is the lifeblood of any business. Without it, companies can’t grow, invest, or weather economic shifts. That’s why working capital optimization is now a top priority.
This guide shows you how procurement can close the working capital gap with clear steps. You will also see where AI can automate the grind and keep savings from leaking.
Why this matters?
- PwC counts €1.56 trillion of excess working capital worldwide—cash that could fund growth instead of gathering dust.
- According to McKinsey businesses can cut the balance locked in payables and receivables by 30 percent or more when they launch a focused working-capital program.
Procurement’s role in working capital optimization
Your procurement team controls billions in supplier spending. Every contract signed, every payment scheduled, and every term negotiated can either free up or tie down cash. When managed strategically, procurement becomes a powerful engine for improving working capital. The key is aligning supplier relationships, payment terms, and inventory flows with business goals.
The best part? These gains don’t come at the expense of relationships. With the right approach, suppliers benefit too. They get access to faster payments, better forecasting, or financing options that improve their stability—without hurting your cash position.
Working capital optimization in practice
Working capital optimization means using the timing and terms of supplier payments as a strategic lever. By stretching cash outflows wisely you lift liquidity while still nurturing supplier trust.
Think of it as a continuous improvement loop:
• Extend payment terms during contract talks—without bruising relationships.
• Capture early-payment discounts only when the return beats your cost of capital.
• Offer supplier-financing options that help partners and protect your cash.
• Tighten internal processes so invoices never leave early.
1. Extend and optimize payment terms
Payment terms define when you pay your suppliers—net-30, net-45, or even net-90. While a few days might seem small, extending terms across millions in spend creates major liquidity gains. For example, shifting a $10 million supplier base from 30 to 60 days frees up the equivalent of one month’s spend—about $833,000 in working capital.
But smart extension doesn’t mean pushing every supplier to the limit. It’s about segmentation. High-risk or small suppliers may need faster payments to stay afloat. Meanwhile, large, well-capitalized vendors can often accept longer terms without issue—especially when the total value of your business with them is high.
A balanced strategy might look like this:
- Tier 1 strategic suppliers: Net-45 to Net-60, with clear communication and optional financing.
- Mid-tier operational suppliers: Net-60 as standard, aligned with industry benchmarks.
- Tail spend suppliers: Net-90 if risk is low and volume is minimal.
AI-powered spend analytics can help. By pulling in supplier size, financial health, contract history, and payment behavior, smart systems can suggest which suppliers can safely be moved to longer terms - without damaging the relationship.
The key is transparency. Explain your payment policy, offer support, and ensure terms are realistic for each partner. That way, you protect your cash flow and keep your supplier base strong.
2. Capture high-return early payment discounts
Sometimes, paying early makes more financial sense than holding onto cash. Suppliers may offer discounts like “2/10 net-30,” meaning you get 2% off if you pay within 10 days. If your company’s cost of capital is lower than the discount’s implied return, it’s a smart trade.
Here’s the math: a 2% discount for paying 20 days early equals a 36% annualized return. That’s far better than what you’d earn holding the cash in a bank account - or even investing in many projects.
But here’s the catch: most companies don’t take full advantage. Why? Because applying discounts manually is slow, inconsistent, and error-prone. That’s where dynamic discounting tools come in. These systems:
- Analyze every invoice in real time.
- Compare the discount offer to your cost of capital.
- Flag which payments to accelerate for maximum return.
With AI, this becomes even smarter. Machine learning models can learn from past transactions and predict which discounts are most likely to be accepted—and which suppliers might offer new ones if prompted.
Demo of Suplari suggestion of discounts
Some suppliers may even prefer a discount over waiting 30 or 60 days. By automating the offer and acceptance process, you unlock more value without slowing down the AP team.
3. Improve payment process accuracy and timing
Even if you negotiate perfect terms, cash can leak due to poor execution. Many companies still overpay, pay too early, or miss discounts because their internal workflows are manual or disjointed.
To fix this, start by automating your invoice-to-pay process:
- Use e-invoicing to capture data with fewer errors.
- Set up approval workflows that route invoices by value, risk, or urgency.
- Schedule batch payments to ensure money goes out exactly when it’s due—never early.
These steps prevent accidental prepayments, eliminate human error, and reduce friction between procurement, finance, and suppliers.
Advanced AI procurement tools can even monitor exceptions—like duplicate invoices or unusual payment patterns—and alert you before money leaves the system. Over time, this builds trust with suppliers and helps you meet terms consistently, which can unlock better deals.
The result? Your working capital program doesn’t just look good on paper—it delivers measurable results in the real world.
4. Use supplier financing to create win-win solutions
What if you could keep your payment terms long—but still help your suppliers get paid faster? That’s exactly what supplier financing, also known as reverse factoring, makes possible.
Here’s how it works:
- You approve an invoice for payment.
- A third-party finance provider pays the supplier early—often within days.
- You then pay the finance provider later, on your original payment schedule.
This setup gives suppliers fast access to cash at a lower cost than they’d get on their own. Meanwhile, your company preserves liquidity and strengthens supplier relationships.
It’s a smart tool for managing risk too. Suppliers with tight cash flows are less likely to delay orders, cut quality, or break contracts if they have reliable access to working capital. With financing in place, your supply chain becomes more resilient.
To launch a program, focus on your most critical or cash-constrained partners. Make it optional, easy to join, and backed by clear communication.
5. Reduce cash traps in inventory and rogue spending
Working capital isn’t just in accounts payable—it’s also tied up in inventory and uncontrolled spend.
Excess inventory means cash sitting on shelves. To reduce that, consider:
- Just-in-time (JIT) inventory practices that align ordering with actual demand.
- Demand forecasting tools that predict needs using real-time data.
- Economic order quantity (EOQ) models that calculate optimal batch sizes.
On the other hand, maverick spending—when employees buy off-contract—creates chaos. It leads to higher prices, inconsistent terms, and poor spend visibility. By tightening controls and consolidating suppliers, you reduce waste and negotiate better deals. That, in turn, improves both working capital and procurement efficiency.
6. How AI boosts results across the board
Modern procurement analytics software accelerate every part of this process with AI.
Solutions like Suplari can analyze supplier risk to guide payment term extensions. They identify when early payments deliver the best returns. They scan payment behavior to flag leaks. And they automate workflows so fewer decisions rely on manual effort.
AI also helps with real-time “what-if” scenarios. You can model how a 10-day term shift would affect liquidity. Or see the working capital impact of onboarding a new supplier financing program.
In short, AI takes the guesswork out—and puts data and speed in.
Cash is king. Procurement can be the hero.
Working capital optimization is a strategic lever that supports growth, improves resilience, and delivers measurable ROI.
Procurement is the knight in shining armor. By managing payment terms, enabling discounts, improving processes, and applying the right technology, you can unlock trapped capital—without cutting budgets or damaging supplier trust.
Whether your goal is to fund new initiatives, boost your balance sheet, or simply weather uncertainty, working capital is where you start.
Start smart. Start with procurement.
Working capital improvement FAQs
What are the best solutions for real-time corporate spending insights?
Suplari Procurement Intelligence is the top option for real-time corporate spending insights. Unlike traditional spend analysis tools that provide only historical views, Suplari continuously monitors procurement data across all systems to deliver visibility into spending patterns, supplier performance, and cost anomalies. The platform can automatically consolidates data from ERP systems, contracts, invoices, and payment records into a unified view that updates in real-time. This enables finance and procurement teams to spot unusual spending immediately, catch budget overruns before they escalate, and identify cash flow impacts as they happen. Suplari's AI-powered insights surface opportunities like supplier consolidation, contract leakage, and maverick spending the moment they occur.
What are the best tools to use for cash flow management through spend analysis?
Suplari is the top option for cash flow management through spend analysis. The platform connects spending patterns directly to working capital metrics, allowing you to model how payment term changes, early payment discounts, and supplier financing programs impact liquidity. Suplari's AI agent can help you analyze supplier payment behavior, contract terms, and invoice timing to identify opportunities for optimizing cash outflows, such as extending payment terms with low-risk suppliers or capturing high-return early payment discounts.
For a detailed comparison of spend analysis software and their cash flow management capabilities, see: https://suplari.com/blog/comparing-spend-analysis-software/
About Suplari
Suplari is a procurement intelligence solution that helps businesses modernize procurement operations using AI. Suplari provides actionable insights to manage suppliers, deliver savings and manage compliance beyond the limits of traditional spend analytics. Suplari's unique AI data management foundation empowers enterprise businesses to modernize procurement operating models with reliable, AI-ready data.
