Using AP Analytics to Optimize Cash Flow in Healthcare

A strong financial strategy is key to maximizing cash flow, workflows, payment optimization and security. However, devising a proper strategy can be difficult – especially when you don’t know where to start. Accounts payable (AP) analytics and automated accounting tools that provide access to all aspects of the AP process are now becoming the most optimal way to reach maximum financial success for healthcare businesses. We will discuss how your healthcare organization can significantly increase cash flow just by switching to an automated AP analytics platform.

The Importance of Cultivating Strong Cash Flows in Healthcare

The healthcare industry plays a vital role in maintaining community health and well-being. In many cases, that role may be the difference between life and death. Keeping trained staff and important supplies on hand requires a strong financial posture with healthy cash flow. But cultivating a healthy cash flow requires AP analytics that can provide an overview of how best to manage payments.

Improving cash flow often requires healthcare organizations to streamline their processes for making and receiving payments. This ensures their vendors are consistently paid on time, making them more likely to prioritize your organization during shortages. Without a strong cash flow, organizations can’t obtain the vital supplies needed to care for patients or pay and retain staff. When the AP department is not optimizing cash flow, the result is felt by not only the healthcare business itself but also the people it was designed to serve and save.

Common Challenges with Cash Flow 

Healthcare cash flow challenges come in many forms. First, these organizations are often run on a narrow margin, leaving little room for delay or error. At the same time, the sector relies much more heavily on slower and costlier check payments than other industries. In fact, 42.4% of surveyed healthcare organizations reported using checks for more than 50% of their payments versus 31% for non-healthcare organizations. 

Other impediments to a healthy cash flow include:

• Lack of visibility into expense and liability prioritization to optimize both vendor relationships and solvency.
• An increase in the number of supplier credits to manage and apply due to recent supply chain disruptions: 29.8% of surveyed organizations indicated this as a specific challenge. 
• Time spent handling vendor inquiries, which means less time for processing invoices and account reconciliation; in fact, 11.4% of healthcare organizations spend more than 20 hours per month on vendor inquiries, 8.2% spend 11-20 hours monthly, and 26% spend 6-10 hours monthly.
• Manual processes and paper-based check payments, which eat up additional time and money; checks are still the most common payment method among healthcare organizations, despite being pricier than electronic payments and more likely to cause payment delays.
• Owing to time constraints, many organizations take a reactive approach to their AP process instead of a strategic one.

How to Optimize Cash Flow with an AP Analytics Solution

The healthcare industry often lags behind other sectors in the use of technology and analytics. But there is considerable value to be had from best-in-class technologies that offer AP automation and analytics solutions. When properly leveraged, the right AP analytics solution provides valuable insights into processes and cash flow that can improve an organization’s financial posture and streamline operations. 

Gain Real-time Visibility into the Payments Mix. AP analytics provides access and visibility into payment areas that healthcare organizations may not have previously considered. Real-time visibility into the payment mix, for example, helps organizations see just how much they’re paying via check, ACH, credit card, wire transfer or other payment methods.

In general, check payments are slower and more expensive, so being able to identify a heavy reliance on checks can help organizations recognize the need to shift toward other payment methods. According to new data, this seems to be a common move among today’s healthcare organizations. A forthcoming State of AP Report by MineralTree shows 71.5% of surveyed healthcare organizations agreed their organization intends to convert more AP spend to electronic payments.

Visibility into payment mix information can help healthcare organizations minimize overall costs and optimize their payment mix over time to reduce work hours and capture cash-back rebates and early-pay discounts – all while promoting strong vendor relationships.

Analyze KPIs to Improve Vendor Relationships and Lower Costs. The right analytics tool makes it easy to analyze key performance indicators (KPIs) such as cost per invoice, average time to payment or percentage of spend by payment method. These and other metrics help organizations understand their current expenses and cash situation. After all, organizations must first track costs and identify waste before they are able to improve those metrics. KPIs can also provide insights into how well organizations are treating their vendors. For example, days payable outstanding (DPO) indicates how quickly invoices are paid. In some situations, having a low DPO is preferred because it keeps vendors happy by paying them quickly. In other situations, organizations may want to increase their DPO to optimize cash on hand while still meeting payment deadlines. 

Optimizing DPO and other metrics also helps organizations get the most out of their suppliers. For example, reducing DPO for strategic vendors can help companies improve their relationships with these suppliers. In healthcare, these relationships are especially vital. In fact, 75.3% of healthcare organizations surveyed in the latest State of AP Report agreed the importance of vendor relationships has grown over the past year.

Maximize Rebates and Early-Payment Discounts. AP analytics also helps provide full visibility and control of the AP payment process, identifying potential savings in the form of rebates or early-payment discounts. From there, organizations can prioritize payments to those vendors offering discounts to increase overall cash flow. Healthcare businesses can also take advantage of electronic payment forms, such as virtual cards, that establish an income stream in the form of rebate credits.

Analytics tools for healthcare organizations show users how much they receive in rebates and early-payment discounts. This initial baseline for spend also provides the capability to track metrics over time, so firms can measure their performance as they shift payment type and timing.

Forecast Cash Inflow and Outflow. The right analytics tools enable organizations to accurately forecast incoming and outgoing cash flow. These insights help organizations make informed and strategic decisions about how and when to spend, which vendors to prioritize and more. This predictability is especially important in the healthcare sector, which often operates on a slim margin and bears the heavy burden of public health and well-being.

Taking Control

It’s time that healthcare organizations take control of spend and start leveraging new ways to increase cash flow, without compromising their current processes. This starts by utilizing a streamlined and automated AP analytics platform.

With an analytics platform that helps identify relevant metrics and KPIs for the healthcare sector, AP teams can focus on improving those metrics with targeted efforts while enjoying the peace of mind that comes from complete visibility and controlled cash flow.