Dynamic Discounting – Turning Accounts Payable into a Profit Center
Having the right accounts payable solution can make a major difference for any company’s profitability. While organizations strive to be profitable, many accounts payable departments are under substantial pressure to manage such a large source of profit for their company. Not having the right AP automation solution in place can cause your AP staff to become overwhelmed with supplier inquiries, lost or duplicate invoices, manual approval processes, and more—while many times, dynamic discounting opportunities are missed and unnecessary costs are left unchecked.
AP departments are, unfortunately, often regarded as a cost-center, rather than a profit center within a company. This is because many AP departments don’t prioritize the time to focus on process improvement within accounts payable while running their business. Many AP departments fail to bring in revenue, as they strive to keep up with outdated processes trying to ensure suppliers are paid. Luckily, automating your accounts payable processes—and more specifically, taking advantage of dynamic discounting—can help turn the AP department into a profit center.
A Change in Pace
Although AP departments are frequently underappreciated, the stigma of their being an unprofitable department is changing rapidly and improving in most industries. Electronic invoicing has made a major impact on accounts payable departments—especially when dynamic discounting (or early-pay discount) is involved. Dynamic discounting makes discounts viable and obtainable for accounts payable, with better cash flow as the result. On average, suppliers are being paid much quicker, in exchange for a negotiated discount percentage. Because of this improved cash flow, AP departments are better perceived for the amount that they are able to save their company, rather than the amount they’re spending.
How It Works
With dynamic discounting, not much changes about the actual payment process. The main difference is the time it takes for invoices to be processed, which shortens the time it takes for payment to be completed. Suppliers can choose when they get paid, and the AP department can decide on a final payment date, based on the automatically calculated discount percentage. For example, if a supplier gets paid every 30 days, this means that he only has cash flow to turn his inventory 12 times a year. If he gets paid every ten days, however, he now has cash flow to turn his inventory 36 times a year. This makes cash flow forecasting more accurate and relieves some of the reporting burden placed on the accounting department. Dynamic discounting is a relatively simple concept, with iPayables customers who have been able to make dynamic discounting a part of their AP strategy saving thousands of dollars each month. Taking advantage of early-pay discounts through AP automation has made it more likely than ever before for AP departments to become a profit center for their company.