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How can you minimize accounts payable in private equity exit planning without harming supplier relationships?

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When you are planning to sell a portfolio company in private equity, you want to maximize its value and attractiveness to potential buyers. One way to do that is to reduce the amount of accounts payable (AP) on the balance sheet, which can improve the working capital and cash flow of the business. However, you also need to maintain good relationships with your suppliers, who may be essential for your operations and future growth. How can you balance these two objectives and minimize AP without harming your supplier relationships? Here are some strategies to consider.

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Wael K.

Global Transformation Executive ? Strategic Innovation ● Operational Excellence ● Change Leadership ● Digital…

1 Negotiate better terms

One of the simplest ways to reduce AP is to negotiate better payment terms with your suppliers. For example, you can ask for longer payment cycles, discounts for early payments, or flexible options for deferred or installment payments. This can help you manage your cash flow and reduce the amount of AP on your books. However, you need to be careful not to damage your supplier relationships by asking for unreasonable or unfair terms. You should always communicate clearly and respectfully with your suppliers, explain your situation and goals, and offer them some benefits in return, such as increased orders, referrals, or loyalty.

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Wael K.

Global Transformation Executive ? Strategic Innovation ● Operational Excellence ● Change Leadership ● Digital Transformation
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Before thinking about negotiating better terms. I would assess top spend categories for reasonableness. reducing wasteful purchases and ensuring that purchases are routed through the right channels tends to contribute the most to AP reduction as the spend didn't need to exist in the first place

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2 Automate and streamline AP processes

Another way to reduce AP is to automate and streamline your AP processes, using software, tools, or services that can help you manage your invoices, payments, and records more efficiently and accurately. This can help you avoid errors, delays, penalties, and disputes that can increase your AP and hurt your supplier relationships. For example, you can use electronic invoicing and payment systems, invoice scanning and matching software, or AP outsourcing services that can handle your AP tasks for you. This can also free up your time and resources to focus on other aspects of your exit planning and business operations.

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Wael K.

Global Transformation Executive ? Strategic Innovation ● Operational Excellence ● Change Leadership ● Digital Transformation
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Maximizing catalog-based purchasing utilizing self-billing based on prenegotiated prices almost eliminates the AP Process. it is giving suppliers the option to opt for dynamic discounting solutions that are either self-funded or using 3rd party financing firms, depending on cash flow positions. eases payment term negotiation to be favorable.

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3 Optimize your inventory and ordering

A third way to reduce AP is to optimize your inventory and ordering, using data, analytics, or systems that can help you forecast your demand, plan your production, and manage your stock levels more effectively and efficiently. This can help you avoid overstocking, understocking, or obsolescence that can increase your AP and hurt your supplier relationships. For example, you can use inventory management software, demand planning tools, or just-in-time ordering systems that can help you order the right amount of materials, supplies, or products at the right time and place. This can also reduce your inventory costs and improve your customer service.

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4 Consolidate and diversify your suppliers

A fourth way to reduce AP is to consolidate and diversify your suppliers, using criteria, analysis, or methods that can help you evaluate, select, and manage your suppliers more strategically and effectively. This can help you reduce the number of suppliers you deal with, negotiate better terms with them, and leverage your bargaining power and volume discounts. However, you also need to diversify your suppliers to avoid dependency, risk, or disruption that can increase your AP and hurt your supplier relationships. For example, you can use supplier evaluation frameworks, spend analysis tools, or strategic sourcing methods that can help you find the best suppliers for your needs, goals, and budget.

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5 Monitor and improve your AP performance

A fifth way to reduce AP is to monitor and improve your AP performance, using metrics, benchmarks, or feedback that can help you measure, compare, and improve your AP processes, practices, and outcomes. This can help you identify and address any issues, gaps, or opportunities that can affect your AP and your supplier relationships. For example, you can use AP performance indicators, industry standards, or supplier surveys that can help you track and evaluate your AP efficiency, accuracy, timeliness, and satisfaction. This can also help you demonstrate your credibility, reliability, and value to your suppliers and potential buyers.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you minimize accounts payable in private equity exit planning without harming supplier relationships?

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1 Negotiate better terms

2 Automate and streamline AP processes

3 Optimize your inventory and ordering

4 Consolidate and diversify your suppliers

5 Monitor and improve your AP performance

6 Here’s what else to consider

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