AP Strategy
In the construction industry, managing accounts payable (AP) is not just about paying bills. It’s a strategic activity that influences a company’s cash flow, vendor relationships, and overall financial health. Anterra’s AP Trend widget plays a pivotal role in visualizing how payables evolve, providing essential insights for financial management.
Let’s delve into the importance of this KPI/widget, its calculation, and its impact through real-life examples.
Accounts Payable Over Time
The AP Trend widget is a visual representation that tracks the changes in the total accounts payable over time. It typically displays the total outstanding payables for all jobs, along with a separate indicator for retainage payable, providing a clear picture of short-term financial obligations.
How It’s Calculated
The AP Trend is calculated by summing all outstanding payables at given intervals (e.g., monthly) and plotting these values over time. Retainage payable, a portion of the contractor’s earned income withheld until project completion, is often tracked alongside to give a complete picture of due payments.
Importance of the KPI
This KPI is critical for construction firms for several reasons:
- Cash Flow Forecasting: It enables the forecasting of cash requirements for future periods, ensuring that sufficient funds are available to meet obligations.
- Vendor Management: By monitoring AP trends, companies can negotiate better terms with suppliers or take early payment discounts when cash flow allows.
- Budgeting and Planning: Identifying trends in AP can help with budgeting and financial planning, allowing for adjustments in operational strategies.
Real-life Examples and Impact
- Example 1: Spike in AP A sudden spike in the AP Trend chart could indicate a large project phase completion or a bulk purchase of materials. This requires planning to ensure that cash is available to cover the spike without affecting other operations.
- Example 2: Steady Increase in AP A steady increase in AP over time might suggest that the company is taking on more work than it has the cash flow to support, or it could indicate that project billing is not keeping up with the costs incurred. This trend might necessitate a review of billing cycles or cost control measures.
The Impact of AP Trends
Ignoring AP trends can lead to strained vendor relationships, damaged creditworthiness, and potential disruptions in the supply chain. Conversely, proactive management of AP trends can enhance a company’s reputation as a reliable partner and enable more strategic financial decisions.
Conclusion
The AP Trend widget is an invaluable tool for construction finance professionals, offering a clear, concise, and timely overview of the company’s financial commitments. Regular analysis of this KPI ensures that companies maintain a strong financial position, capable of weathering the ebb and flow of the construction market.
For those in the construction industry looking to strengthen their financial analytics, our suite of tools can help. Contact us at info@anterratech.com or visit our website to discover how you can gain actionable insights from your financial data with our AP Trend analysis solutions.