How payment optimization drives working capital efficiencies

Working capital has long been a basic test of an organization’s financial discipline. But it matters even more when borrowing is costly and the outlook uncertain. Cash tied up in unpaid invoices or scattered bank accounts cannot be invested to fund strategic priorities or held as a buffer in volatile times. This makes working capital optimization a strategic imperative.

Traditional working capital optimization strategies, such as accelerating receivables and limiting unnecessary inventory, still matter. But payment optimization can support cash flow by improving the visibility and control of cash movements through the business.

U.S. Bank’s latest CFO Insights Report reflects this shift. Over a quarter (27%) of finance leaders named improving cash flow as one of their three main priorities, up from 17% in the previous survey.

Working capital optimization matters now more than ever

The core objective of working capital management has not changed. Organizations need sufficient liquidity to run their day-to-day operations without leaving more cash than necessary tied up in the business.

What has changed is the cost of failing to find that balance. When borrowing is expensive and the outlook unpredictable, organizations that have cash trapped in receivables or fragmented accounts feel the pain of being unable to respond quickly to changing conditions.

“Organizations are asking how treasury can move from being a cost center to a profit center,” says Peter Geronimo, executive vice president, payments, U.S. Bank. “Driving working capital initiatives can be a powerful way to make that shift.”

Finance leaders are not only asking how to release cash by accelerating collections or changing payment terms – they are also looking at what to do with that cash once it becomes available.

Naturally, different organizations have distinct priorities. One might be keen to repay debt; another may want to invest in search of a healthy return. Others may look to pay selected suppliers early in exchange for a discount. Some options, such as looking for key investment opportunities, may involve retaining cash for longer, while others involve releasing it early for enhanced benefits. Effective working capital management is neither about delaying every payment nor deploying cash at the first opportunity. Rather, it’s about making considered choices.

Cash flow optimization requires a clear view of the horizon

Before they can make effective decisions in relation to working capital, finance teams must understand the current cash-versus-payments-due position. They must then have a clear idea of how expected and unexpected inflows and outflows could change that position over the coming days and months as well as possessing the capacity to plan for contingencies. “Having clear information on invoices and collections, and being able to understand the company’s cash position day-by-day, is foundational,” Geronimo says.

For larger organizations that operate across a range of banks, business units and countries, attaining such cash flow visibility can be a difficult proposition. Treasury teams may need to gather balances from different systems and manually piece them together into a company-wide cash position. Consolidated reporting can provide a timely view of liquidity, improving the precision of forecasting and reducing unnecessary external borrowing. Automated payments can also support working capital management, providing more timely information about when cash has entered or left the organization.

While organizations need not overload themselves with payment system options or seek to make every transaction instantaneous, it is worth carefully examining existing systems for cash-flow inefficiencies. Better visibility helps finance teams identify where cash is getting stuck through inefficient management. By gaining greater awareness of the cash cycle, they can become more sensitive to when money is tight and when there is excess available for use.

To gain greater control over the timing of cash outflows, organizations can review supplier terms and payment processes. Supply-chain finance, for example, may allow a buyer to pay later while giving a supplier the option to receive funds earlier from a bank. Moving away from checks may also reduce processing delays and fraud exposure. Federal Reserve Financial Services’ 2026 Risk Officer Report found that 63% of financial institutions reported check fraud attempts in the prior 12 months. In addition, 32% of respondents noted an increase in counterfeit checks, and others saw jumps in ‘check washing’ (21%) and payee forgery (18%).

On the receivables side, the central question is how quickly a sale can be converted into usable cash. Faster settlement and more efficient customer payment systems can accelerate collections. Better remittance information and automated reconciliation can also help finance teams keep tabs on cash entering and leaving the system, giving them a more accurate reported cash position at any given time for less human effort.

Technology alone will not compensate for a weak process

Replacing a manual process with a digital one will not automatically improve the working capital position as it could fail to address an underlying issue such as poor-quality data. Leaders should begin by identifying their business objective, such as reducing fraud or lowering processing costs. Once identified, that objective then shapes payment strategy, including selecting the capabilities to support it.

The next requirement is securing reliable data. For payables, this includes accurate supplier details, payment terms, transaction histories and current method used to pay each vendor. For receivables, it means understanding the level of reconciliation efficiency. Analyzing that information can pinpoint opportunities. One group of suppliers may be suitable for virtual cards, for example, while another could benefit from supply-chain finance.

Turning that analysis into delivered outcomes requires coordinated action across the organization. Technology teams may need to connect enterprise resource planning and banking systems. Accounts payable teams may need to adjust their work systems. Procurement teams must consider how changes to payment methods or terms will affect supplier relationships. As Geronimo puts it, “To move forward, you have to have the entire organization behind the transformation.”

A united front is also critical when onboarding suppliers. While a buyer may see a strong financial case for moving away from checks or negotiating longer payment terms without prompting, procurement must convince the supplier of the upside. A program that strengthens the buyer’s liquidity at the expense of critical suppliers would weaken important commercial relationships.

Organizations must also integrate controls into the transformation plan. Risk management is already a leading driver of payments modernization. U.S. Bank’s CFO Insights Report found that 57% of finance leaders had taken steps to decrease fraud and cyber risk in payment operations during the past 12 months. The same research shows that organizations are modernizing their systems to make better use of data and adopt instant payment methods.

Digital payments can reduce risks associated with checks and manual processing, but faster transactions and more connected systems can expose organizations to new risks. For example, payment errors may become harder to reverse. Fraud monitoring and data-protection protocols must be designed into the process from the outset.

The wider business case for payment optimization

Improving working capital may be the immediate goal, but stronger payment capabilities can create further value across the organization.

“The transformation should deliver a range of outcomes: increasing revenue, reducing costs and streamlining operational efficiencies, and providing stronger protections against fraud,” Geronimo says.

The first benefit is financial. Cash released through improved working capital management can reduce borrowing requirements or support investment elsewhere in the business. Some commercial payment methods may also generate rebates, creating a direct benefit to the bottom line.

The second is lower cost and risk. Checks require printing, mailing, handling and reconciliation. Simplifying those processes can reduce administrative costs and exposure to payment fraud.

The third is greater operational capacity. Automated execution and consolidated reporting can reduce repetitive work, allowing finance employees to spend more time on forecasting and analysis. There may also be benefits for customers and suppliers: more predictable and user-friendly payments systems can strengthen commercial relationships.

These benefits are not theoretical. In one recent engagement, a large organization carrying a high volume of paper-based supplier payments shifted a meaningful share of that spend to virtual card and electronic methods. The result was a substantial release of trapped working capital, a measurable reduction in processing costs, and new rebate revenue that turned a back-office function into a contributor to the bottom line, all while reducing exposure to check fraud. “When you connect the working capital opportunity to a clear business outcome, the case makes itself,” Geronimo says.

The scale of these gains will vary. Factors such as transaction volumes and implementation costs will influence the result. But taken together, the benefits can broaden the business case from a working capital initiative into a wider program of finance transformation.

How to optimize working capital: Start with the outcome

Each organization’s route to optimizing working capital will be distinct. Each business works under a unique set of constraints and has its own set of commercial priorities. The starting point, therefore, should be the financial or operational result the organization is trying to achieve.

Finance leaders should begin by identifying where cash is delayed and what those delays cost. Technology can then be applied to a defined objective, whether that be reducing costs, improving visibility or something else.

Without that discipline, digitalization may simply make an inefficient process faster. Done well, payment optimization can offer finance teams a clearer view of where their cash is at any given moment – and greater control over how it is used.
 

Whether you’re looking to improve liquidity, modernize payments or uncover working capital opportunities, our team is here to help. Connect with a U.S. Bank payments expert to explore your options.