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Accounts Receivable vs. Accounts Payable: What Every CFO Should Know
Aug 19, 2024
Title: Accounts Receivable vs. Accounts Payable: What Every CFO Should Know
🧠 TL;DR
Accounts Receivable (A/R) and Accounts Payable (A/P) are two sides of your company’s cashflow engine. A/R = money owed to you. A/P = money you owe others. Both are critical to liquidity, but their workflows, risks, and automation levers are completely different. If you're optimizing one and neglecting the other, you're flying with one engine.
🧾 Quick Definitions
Term | What It Means |
|---|---|
Accounts Receivable (A/R) | Money customers owe you for goods/services delivered |
Accounts Payable (A/P) | Money your company owes to vendors/suppliers |
In short:
A/R = Assets (expected inflows)
A/P = Liabilities (expected outflows)
💵 Impact on Cashflow: Who Controls What?
Function | Controlled By | Levers for Improvement |
|---|---|---|
A/R | You | Invoice timing, follow-ups, collections strategy |
A/P | Vendors | Negotiated terms, vendor management |
A/R is offensive: you can accelerate it.
A/P is defensive: you can delay it—but not too much, or you erode trust.
🏗️ Workflow Comparison: A/R vs A/P
Step | A/R Workflow | A/P Workflow |
|---|---|---|
Trigger | Sale closed / service rendered | Bill received from vendor |
Document generated | Invoice issued to customer | Bill entered into system |
Terms | Net 15 / 30 / 45 / milestone-based | Net 15 / 30 / 60 / per contract |
Payment method | ACH, card, wire, check | ACH, card, wire, check |
Follow-up | Done by collections team (or ignored) | AP monitors due dates, avoids late fees |
Risks | Late payment, non-payment, write-off | Late fees, strained vendor relationships |
KPIs | DSO, % current, aging buckets, bad debt | DPO, on-time payment rate, payables turnover ratio |
📉 The Cost of Poor Execution
If A/R breaks:
Customers delay payment → working capital drops
Finance team chases down invoices manually
Bookings ≠ cash → distorted runway projections
You borrow when you shouldn't have to
If A/P breaks:
You overpay or duplicate pay vendors
Missed early-payment discounts
Late fees accumulate
Vendor trust erodes → worse terms
🧠 Strategic Mindset: Which to Prioritize?
Most CFOs obsess over A/P optimization (negotiate terms, push out payments) because it’s visible and controllable. But A/R is the higher-leverage lever:
A/R touches cash before it hits the bank
A/R affects DSO, which compounds across your customer base
A/R is the harder problem to get right at scale—because it's unstructured
A/P can be optimized with rules and schedules.
A/R needs AI, outreach, negotiation, and workflow orchestration.
🧠 Why Gen-AI + Automation Should Start With A/R
A/P automation is mostly solved (see: Bill.com, Ramp, Airbase).
A/R automation is 5–10 years behind.
Why?
A/R involves interpreting human behavior ("we’ll pay Friday", "can you resend the invoice?")
Involves unstructured data (emails, PDFs, Excel POs, remittances)
Requires judgment (who to follow up with, when, how)
That’s exactly where Gen-AI shines—and why modern tools like Monk focus on A/R first.
⚖️ KPIs Every CFO Should Track in Tandem
Metric | A/R-Related | A/P-Related |
|---|---|---|
Days Sales Outstanding (DSO) | ✓ | |
Aging Buckets | ✓ | |
Collection Efficiency Ratio | ✓ | |
Bad Debt Ratio | ✓ | |
Days Payable Outstanding (DPO) | ✓ | |
Discount Capture Rate | ✓ | |
Payables Turnover Ratio | ✓ | |
Working Capital Ratio | ✓ | ✓ |
🛠 How Monk Optimizes the A/R Side of the Equation
Auto-generates invoices from your ERP or billing system
Uses LLMs to extract promise-to-pay signals from customer replies
Reconciles payments via Stripe, Plaid, or bank remittance
Prioritizes follow-ups by invoice risk and historical payment behavior
Gives real-time reporting on what’s collectible, what’s disputed, what’s delayed
While your AP automation tools handle spend, Monk accelerates your cash-in—the #1 lever for growth without dilution.
🧠 Bottom Line
A/R fuels your growth; A/P controls your burn
A/R automation gives leverage; A/P optimization gives efficiency
In 2025, automating A/P is table stakes—automating A/R is your advantage
You can’t run a world-class finance org without mastering both.
But if you're prioritizing one, start with the side that gets you paid.
