Dynamic Discounting – Tips and Strategies
As AP automation advances, more accounts payable departments have come to realize the benefits of taking advantage of dynamic discounting. This, in turn, has brought many AP departments into a better light within their companies. Typically, an invoice can come in with payment terms between 30-60 days, but traditional AP workflows often struggle to meet these deadlines. With accounts payable automation, however, the invoice can quickly be approved, and the supplier is notified that they can get paid early for a discount. The supplier can then select the day they’d like to get paid, and the online portal automatically calculates a discount based on the day that the supplier chooses.
Submitting Payment Early
It’s important to keep in mind that, if discounts are offered, the suppliers must actually receive payment on the day they choose to be paid. This can become exceedingly difficult in some situations—for example, if your supplier gets paid via check, and you do a check run only once a week. For many, the value of ACH is easier and less expensive. With that in mind, dynamic discounting can be used to get vendors to sign up for ACH.
Another strategy is to get the invoices approved quickly; allowing you to maximize your discounts. Most users will flag the invoices that have been selected for discounts, so that the approvers will be able to identify and approve those invoices faster.
Pre-Selecting and Setting Maximum Discounts
Typically, a company will want to offer the option of dynamic discounts to their larger suppliers to maximize their savings. With these types of accounts, suppliers are often sending in a lot of invoices at once. A multitude of invoices at a time means getting several notifications at once. Normally, the suppliers would have to manually adjust each invoice in order to set their discounts. Luckily, AP automation allows them to pre-select the discounts, as well as set maximum discounts, so that they don’t have to manually touch them.
Accounts Payable and Purchasing
With an enterprise-level AP automation solution, suppliers are given better visibility into the invoicing process. Dynamic discounting is one of the great benefits that come from an enterprise-level solution, as discounts become easier to negotiate between customer and supplier. This also enables better cashflow for suppliers, should they need their payment sooner than anticipated. Additionally, dynamic discounting leads to better communication, not only between customer and supplier, but also between AP and purchasing—which is great news for any company.
AP Becomes a Profit Center
When fully taken advantage of, dynamic discounting has an abundance of benefits and savings it can provide to a company. Through dynamic discounting, many large, global companies now have access to a tool that can change their accounts payable department into an automated profit center—and help them to garner recognition within their organizations.