Dynamic Discounting: Keeping Suppliers Happy
More and more organizations are coming to the realization that AP Automation is one of the optimal methods for more efficient and profitable finance teams. Those who may be struggling with managing their payment operations especially like how e-invoicing can propel accounts payable forward instead of seeing it flounder through innovative payment practices such as Dynamic Discounting. According to a June 2017 research report from Aberdeen Group, they found that by taking advantage of Dynamic Discounting, AP Departments can strengthen their relationships with their suppliers and their clients.
The benefits of timely payments on invoices are numerous according to the Aberdeen report. From strengthening relationships in business to better cash flow, Dynamic Discounting is forecasted to be the wave of the future in the world of Accounts Payable automation. They also serve to make suppliers much happier overall, making this one single AP process a win-win for everyone.
It’s a well-known fact that suppliers prefer getting paid as quickly as possible. On average, an organization can end up waiting as long as 40-days before receiving payment for invoices. Unfortunately, this means that a sizable chunk of their working capital is frozen, since it’s not available to them for use. Most of these suppliers would, of course, prefer not to have to wait so long for payment and Dynamic Discounting can solve this dilemma.
On the other side of the coin, buyers usually prefer balancing and retaining their capital and being able to maximize any discounts that they can get. Naturally, getting a discount is always better than paying full price for goods. In the past, they would have to try negotiating discount terms with their suppliers. With Dynamic Discounting, they receive an automatic discount for paying invoices early, or at least on-time, making both sides happy.
Main Goals
The report shows that the main AP Automation, Dynamic Discounting, and Electronic Invoicing goals are to:
- Capture early payment discounts
- Avoid penalties for late payments
- Improve relationships with suppliers
- Maintain those relationships
Performance Metrics
The Aberdeen report shows that the performance metrics related to Accounts Payable Automation and Dynamic Discounting include the following:
- An average AP Department can process 8,093 invoices monthly w/out AP Automation and 33,339 with it.
- Their straight-thru-process-rate would be 18 % without vs. 31% with.
- Their early-payment-discount-capture-rate would be 79% without vs. 87% with.
- Their on-time payment rate would be 77% without vs. 89% with.
- Their early-payment-discount-opportunity would be 66% without vs. 77% with.
So, if you feel that your company could benefit from Dynamic Discounting as a part of your E-invoicing process, then you’re on the right track. Dynamic Discounting has proven to be a win-win situation for your AP department and for working with your suppliers. It saves time and money all the way around, and Aberdeen’s report shows the many ways it can help.