Maximizing Accounts Payable Cash Flow

Payment discounts are easy to find today; even the average consumer knows where to look for them. Most buyers have the common sense not to buy a product until a discount is available.

Enterprise Makes the Stakes Much Higher

Because of current low interest rates, the focus has shifted from money that can be earned through investments to money that can be saved with payment discounts. Businesses that regularly take advantage of early payment discounts on invoices can see a significant yearly savings that rises well above the current investment rates offered.

Most business leaders know this, but the struggle remains the same: having sufficient cash flow to take advantage of the discounts that are being offered every day. Some of the reasons for this disparity are illuminated by Richard Law in his article titled, “Five Ways to Overcome Early Payment Discounting Challenges”.

Accounts payable automation contains the tools that help alleviate the tension between working capital and early payment discounts.

Sliding Scale Payment Discounts Instead of Fixed

Dynamic Discounting has opened a new door of possibilities for the average business that didn’t exist before. Prior to the introduction of E-invoicing, the best payment terms that were usually possible on invoices were 2% 10, net 30 days. If a business could not raise the money to pay the invoice within 10 days, the discount was lost. Because of slow turnaround times due to manual processing of invoices, some businesses even struggled to keep up with the 30-day payment terms. “The check’s in the mail” became a familiar refrain to use with suppliers.

With AP Automation, payments are made and received electronically with no lag time in between. Dynamic Discounting allows payments to be made on a sliding scale of days instead of at one fixed due date. Payment discounts can be captured at different times for various suppliers, allowing more flexibility for the buyer. In addition, most AP Automation Solutions offer several ways to find the upfront cash flow needed for early payment of invoices, such as third-party funding.

A Transparent Electronic Process

Electronic invoicing is a transparent process. Discounting options offered by each supplier become highly visible, as well as their immediate effect on cash reserves and the success or failure of various options used. Progression from the development of purchase order to the payment of invoice can be easily tracked. Troubleshooting can be handled efficiently and quickly as problems occur. Less problems can be expected over time, as error-free automation and standardization of chosen parameters is utilized.

E-invoicing can operate as a silent assistant to businesses small or large, working behind the scenes to match the daily needs of working capital with the supply of savings provided by early invoice payment discounts. Dynamic discounting is recognized as one of the primary ways that businesses can still profit in a slow economy.

Referenced Source:

Richard Law: “Five Ways to Overcome Early Payment Discounting Challenges”: Paytech December 2016

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