eProcurement & Procure-to-Pay Resources

The Foundation of a Successful Dynamic Discounting Program: Part 2

Published March 16, 2016 at 1:18 PM
Jack Mulloy

In Part 1 of this series, we explored why companies are gravitating towards dynamic discounting initiatives. In this post, I’ll talk about the key ingredients to a successful dynamic discounting program.

Let’s start with the supplier and work our way to the enterprise.

1. Suppliers

First, suppliers need to be educated on the options and benefits of taking early payment.

Second, suppliers need an intuitive technology solution that allows for clear and timely presentation of approved invoices and associated payment options.

Finally, suppliers need to believe that clicking ‘pay me now’ will definitely result in the expected action. There’s no room for latency in the process once a supplier commits to early payment. Oftentimes, the application that consumes the suppliers ‘pay me early demand signal’ is not the solution that dispenses funds. It’s up to the buyer to ensure the process is timely and monitored. From the time the supplier says ‘pay me early,’ to when the funds are deposited into the bank account, it’s important to make certain this cycle is efficient and well-oiled.

2. Treasury

Treasury needs to provide compelling payment options to a broad range of suppliers. Too often, companies focus their attention on delivering expensive payment options to smaller suppliers, who may have a greater need for more immediate payment. Of course, invoice discount percentages are higher in these situations, but the pool of accepting suppliers shrinks dramatically as the cost of the money becomes more painful.

Treasury should explore options to use third party cash (likely from a banking partner) where the cost of capital is lower. Using a bank’s less expensive cash enables the dynamic discounting program to impact many more suppliers--both big and small.

3. Accounts Payable

Many dynamic discounting initiatives are dead on arrival due to invoice processing latency in Accounts Payable (AP) departments. Who is to blame? Procurement for not requiring users to create rich, detailed purchase orders (POs) that promote touchless invoice transactions? Suppliers for sending too many paper invoices? Internal Departments for not approving invoices or invoice exceptions in a timely fashion?  Most likely, there’s a combination of guilty parties who contribute to long invoice processing times. In fact, we’ve found most invoices take an average of 30+ days to move from submitted status to fully approved.

To drive maximum AP efficiency, invoice ‘ingestion’ method is a key metric to monitor (and influence). Companies should push for electronic invoices in the preferred order of: cXML, EDI, email.

Companies should minimize paper invoices whenever possible (with the understanding that paper invoices will likely remain for the next decade). For paper invoices, AP should have a process in place to digitize the invoices as quickly as possible.

4. Procurement

While Procurement is a couple steps removed from actually remitting payment to the supplier, it plays an important role in the success of the dynamic discount program.  

Oftentimes procurement is the first group to formally engage the supplier from a sourcing and contracting process. During those processes, procurement should communicate the dynamic discounting program and start familiarizing the supplier with the options and benefits.

Procurement normally takes a lead role in enabling the supplier to become B2B eCommerce capable. The supplier enablement process typically includes the enablement of some (or all) of the following:

  • Supplier catalog
  • Electronic purchase order transmission
  • Electronic order confirmation
  • Electronic advanced shipment notification (ASN) transmission
  • Electronic invoice transmission
  • Electronic remittance transmission

Procurement should be AP’s best friend, as its efforts put the foundation in place to drive touchless invoice transactions. Invoices that match against richly formatted and highly detailed POs will result in high percentages of touchless invoices (aka straight through invoices or perfect invoices).  

Procurement organizations should be cautious about the fact that many eProcurement solutions drive end users to create PO’s via a generic, non-catalog requisition process. These POs are not best practice and will lengthen the invoice processing time. Companies should look to eProcurement providers that drive a truly B2C eCommerce experience.  

Long story short, driving value from any dynamic discounting program requires the coordination and executive buy-in from procurement, AP and treasury. All three groups need to recognize that Procure-to-Pay efficiency is key to success of the program.  

For more on perfecting the Procure-to-Pay process, see how BuyerQuest partnered with Taulia to help organizations take their financial supply chain to the next level. 

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