Articles

How to Maximize Working Capital by Paying Faster

  • By AFP Staff
  • Published: 5/12/2025
How to Maximize Working Capital by Paying Faster

Conventional wisdom tells us that the longer a company holds onto cash, the better its working capital position. After all, slower payments mean more cash on hand, right? Not necessarily.

Today’s finance leaders are rethinking the traditional playbook. Through the strategic use of virtual cards, dynamic discounting and supply chain financing, they are extending days payable outstanding (DPO), generating rebates and reinvesting working capital more effectively.

As part of our Best of AFP 2024 Series, we brought back one of our most popular conference sessions, “Paying Faster to Maximize Working Capital,” to explore how leading organizations like Chick-fil-A and Ally are transforming their payables strategies. Below is a look at the key lessons from the session.

Strategic levers to narrow the gap

Most companies bridge the cash gap (or funding gap), i.e., the period between when cash goes out and when it comes in, through borrowing. This usually happens in the form of a line of credit.

“The difference between when you collect and when you pay is measured in days,” said David Enick, Senior Vice President, Treasury Solutions Group for PNC, “but its impact is felt in dollars — and it needs to be funded.”

To narrow the gap, companies typically either reduce days inventory outstanding (DIO) and days sales outstanding (DSO) or increase DPO by extending terms or optimizing how payments are made. With a focus on DPO, the following levers specifically support strategies to increase DPO and enhance working capital efficiency:

  1. Virtual cards extend payment float, and based on available terms, they can add 60+ days of float, allowing you to pay suppliers on time (or even early), while deferring your own cash outflow. When looking at the DPO calculation, “virtual card payments can have a positive impact on the numerator by increasing the average AP balance through payment float, and if a rebate is treated as a contra expense, it can also have a positive impact on the denominator by reducing COGS, both of which can improve DPO,” said Enick.
  2. Discounts offered by suppliers and accepted by the buyer enable buyers to pay an invoice at a discount off of the face value of the invoice, typically resulting in an APY of approximately 36%, but these discounts are not always offered by suppliers. Another way to capture additional discounts is through buyer-initiated dynamic discounting, which allows suppliers to choose how early they want to be paid in exchange for a sliding-scale discount. Unlike common static terms, dynamic discounting works off of a sliding scale based on when a payment is made. This enables you to use the available cash strategically, especially in high-liquidity environments. “It creates more opportunities to capture discounts in different ways beyond the approach of just looking at what suppliers are offering,” said Enick.
  3. Supply chain financing (SCF) allows buyers to extend payment terms while offering suppliers the option to get paid earlier via a third-party financier — usually at a much lower cost than traditional discounting. SCF is particularly effective with high-spend suppliers who might otherwise push back on longer terms. “This can be an effective way to mitigate the impact on the suppliers, where you get the benefit of longer terms, but suppliers can still get paid faster,” said Enick.
 

Reinvest working capital for greater ROI

Generating working capital is only half the equation; the real value comes from how you put that incremental working capital to work. Once DPO is extended (through payment terms or float), you can maximize the value generated from the freed-up cash by strategically redeploying it back into the supply chain.

Three core reinvestment strategies include:

  1. Paying down debt: If your organization is a net borrower, using newly available working capital to reduce short-term debt is the most straightforward path. Even a modest reduction in line-of-credit usage at 5% interest delivers immediate cost savings.
  2. Earning a yield on cash: When capital isn’t needed to cover borrowing, it can be invested at market rates, which can be 3% or more, depending on conditions. While it’s not game-changing, it’s still a positive yield on a previously locked-up asset.
  3. Redeploying into the supply chain: By using freed-up working capital to pay other suppliers faster, organizations can selectively capture early pay discounts, which are often 2% or more and can equate to an APY of approximately 36%.

Execution requires governance

No matter how innovative your working capital strategy is, it will fall short without a solid operating framework behind it. Governance best practices, such as the ones below, can help enable consistency, credibility and control:

  • Collaboration is key. Developing a working group with key stakeholders including treasury, accounts payable and procurement is critical to ensure stakeholder alignment, not only for strategy development but also for top-down execution across the organization.
  • Use a model to evaluate trade-offs. Understanding how changes in strategy can impact EBITDA and cash flow is important to help make informed decisions. A strong model can help you understand not only the buyer side impacts but also the supplier side impacts to cash flow as it relates to the costs or benefits of: paying faster when taking discounts; paying slower without discounts; paying faster with virtual cards; and other scenarios related to vendors charging fees, etc. Having this data empowers procurement and sourcing teams to negotiate with confidence and even define what a “win-win” could look like for both parties.
  • Align policies, templates and onboarding. Ensure that the terms in all documentation, including master service agreement (MSA) templates, statement of work (SOW) templates, supplier onboarding forms and internal procedures are standardized and aligned with the strategy. Otherwise, suppliers can easily slip through with noncompliant terms, undermining your broader strategy.
  • Plan for variance and exceptions. Certain spend categories, such as utilities or critical services, could require shorter terms. Rather than forcing a one-size-fits-all solution, define a framework for exceptions, including approval paths and parameters for negotiation.

AFP Enterprise Payments Virtual Series

Join us on June 25, 11 AM - 2:40 PM ET, for the complimentary four-part AFP Enterprise Payments Virtual Series focused on innovating accounts payable and accounts receivable processes. In this series, you'll unlock ways to modernize and revolutionize enterprise payments with automation, AI and more.

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Case study: Chick-fil-A’s balanced approach to payments optimization

If you were to describe Chick-fil-A’s working capital strategy in one word, it would be balance. While the company wanted to optimize payments, it did not want to outgrow its internal processes or compromise its vendor relationships.

“We wanted kind of a Goldilocks payment philosophy where we don't pay too early, but we don't pay too late — we just pay on time,” said Steven Peterson, Executive Director of Treasury, Chick-fil-A.

Chick-fil-A’s goals included:

  • Transitioning to fully electronic payments
  • Improving cash forecasting
  • Eliminating check payments
  • Offering vendor financing options

But the team also recognized that how payments are made is just as important as when. They evaluated three key procurement structures — decentralized, center-led and centralized — and chose an approach that maintained flexibility while introducing guardrails and negotiation guidelines for payment terms.

Their strategy focused heavily on partnering with suppliers, ensuring that payment policies were mutually beneficial. “We want our vendors to be financially healthy,” said Peterson. “If they're financially healthy, they can support Chick-fil-A not only today, but in the future.”

The team analyzed potential improvements in DPO, vendor financing preferences, and savings opportunities from discounts or card rebates. Then, rather than mandating a single approach, they wanted to give suppliers options, including virtual cards, dynamic discounting and supply chain financing (coming), to align cash flow benefits with vendor needs.

By aligning procurement, accounts payable (AP) and treasury under a unified vision (and placing a premium on vendor care), the team at Chick-fil-A created a scalable model that improves working capital without sacrificing relationships.

Case study: Ally’s multi-year payables transformation

While Chick-fil-A provided a lesson on balanced, supplier-friendly payments, Ally’s story shows that working capital optimization is a journey, not a project. Over more than a decade, Ally has transformed its payables strategy from a narrow, AP-led effort into a coordinated, enterprise-wide initiative with measurable impact.

Ally’s virtual card program started slowly, driven primarily by suppliers asking for electronic payments. At the time, sourcing wasn’t involved, and growth was limited by internal resistance to vendors being contacted directly.

Things changed when Ally started assigning growth targets for virtual card adoption and introduced internal champions across procurement and AP. Processes were updated to allow payment method decisions to be included in contract negotiations. “We started training sourcing to understand what the program is and how they could use it during supplier conversations,” said Michael Ferranti, Senior Director and Head of Supply Chain Operations for Ally Financial.

Then, Ally pushed to standardize its terms and made early payment contingent on participation in a virtual card or discounting program, with approval from AP required for any term exceptions. To ensure alignment, payment terms were embedded in MSA templates, making reversals more complicated and giving Ally leverage to renegotiate pricing if needed.

Finally, to drive enterprise-wide engagement, the company began rebate-sharing. It started distributing savings from virtual cards and discount programs back to business units based on their supplier spend. That move turned what was an AP initiative into a company-wide win. “Now that the rebates are hitting cost centers, the business can help us negotiate adoption with suppliers,” said Ferranti.

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