Payment Timing Uncertainty Is Costing CFOs Billions

The biggest opportunity for chief financial officers (CFOs) isn’t adding another day to pay. It’s eliminating the uncertainty inside the days they already have.

Today’s corporate working-capital playbook has become almost reflexive: shorten days sales outstanding (DSO), stretch days payable outstanding (DPO), squeeze inventory. Working-capital optimization, in this static sense, becomes a negotiation over who gets to hold the cash. But there is a problem with optimizing the number of days on either side of the cash conversion cycle. Eventually, somebody else has to give them up. A buyer extending payment terms from 30 days to 45 improves its cash position partly by transferring 15 days of financing to its supplier. A supplier demanding faster payment reverses the equation.

This isn’t new news to anyone with a passing interest in B2B payments. A company paying an invoice on day 30 does not necessarily know when the money will leave its account. A supplier promised payment on day 30 does not necessarily know when usable funds will arrive. Checks introduce mailing and clearing delays, ACH introduces processing windows, and innovations like virtual cards have their own enablement hurdles.

Multiply these small timing uncertainties across just one day’s worth of B2B transactions, and companies end up carrying liquidity not simply because their commercial obligations require it, but because their payment infrastructure does.

The contract says Day 30. The balance sheet experiences something considerably fuzzier. That changes how finance should think about the cash conversion cycle.

Read also: Working Capital Is Becoming a Priced Portfolio for CFOs

The Hidden Variable in Time to Cash™ Is Variance

The interval between invoicing and funds availability, what PYMNTS Intelligence defines as Time to Cash™, represents a period during which capital cannot be deployed to meet obligations, fund growth or reduce risk.

Consider two large businesses each expecting $100 million of receivables Friday. One knows almost precisely when the money will arrive, which customers will send it, which invoices it satisfies and when the funds will become available. The other knows only that $100 million is contractually due. Those are not equivalent treasury positions. That makes cash-flow variance a working-capital cost.

The second company must plan for variance. It may retain more operating cash, preserve revolver capacity or postpone another deployment of capital because expected receipts cannot be treated as certain liquidity. And it suggests a metric finance organizations rarely discuss alongside DSO or DPO: the difference between the contractual timing of cash and its actual economic availability, or Time to Cash™.

Compressing that time can release liquidity without extracting another day from a customer or supplier. The balance sheet does not necessarily become smaller because companies suddenly need less working capital. It becomes more efficient because less liquidity has to be reserved against ambiguity.

The PYMNTS Intelligence report “Time to Cash™: A New Measure of Business Resilience” found in October that 77.9% of chief financial officers see improving the cash flow cycle as “very or extremely important” to their strategy in the year ahead.

See also: The Finance Stack’s Great Unbundling Has CFOs Asking What They Need to Own

CFOs Have a Problem: Cash Can Arrive Before Finance Knows It Arrived

The important question is no longer simply how quickly money reaches the bank. It is how quickly the company can confidently do something else because it arrived. Every improvement in certainty creates the possibility that a dollar previously held “just in case” can be invested, used to reduce borrowing, deployed into the business or returned to shareholders.

If treasury cannot reliably predict tomorrow’s inflows and outflows, keeping additional cash available is rational. If incoming payments become more predictable, outgoing settlement becomes more deterministic and account information updates continuously, some of that insurance becomes unnecessary.

The relevant CFO question becomes surprisingly simple: How much cash are we holding because our payment infrastructure cannot tell us precisely what happens next?

The next breakthrough may not come from convincing customers to pay on Day 29 instead of Day 30, or suppliers to accept Day 31. It comes when Day 30 finally behaves like Day 30—and the CFO no longer has to keep billions of dollars around to insure against the difference.

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