May 11, 2012 Dynamic Discounting – the Sweet Icing on the AP Automation Cake
Let’s start this week’s blog off with a little confessional. I know out there are companies that take the discount they didn’t earn. They take the 2% and pay at 30 days (or beyond). Maybe the vendor relationship is strong enough to overlook the practice, but let’s not be naive about who eats that 2%. Suppliers aren’t naïve and will get their fair price wherever they can find it – even in little price increases.
So assuming that you’re one of those companies that only takes a discount if you can actually pay early but still have paper coming into AP you probably find yourself partaking minimally at the discount pool. How do you create more discount opportunity and drink more deeply?
First – Automate Invoice Capture. Too much time is lost in the mail, mailroom and data entry. Even companies that semi-automate with an imagine solution are 5 to 7 business days in pre-scan processing of that piece of paper.
Second – Automate Invoice Approval and Matching. This phase can be the real bottleneck depending on the approval process. If a paper invoice is going to sit on someone’s desk you are in trouble. If it’s stuck in AP because the semi-automated workflow isn’t smart enough to get the invoice to the right person at the right time you’re in trouble. If you are still matching invoices to PO’s manually you are in trouble. Truly automated invoice approval and matching can reduce approval and matching to 1 to 5 days.
Now the total process from submission to approval takes a total of 3-5 days with gives 25-27 days on standard 30 day terms to get some discounts flowing. The next question becomes, “How do I get my supplier to take a discount now?”. Suppliers want flexibility. They don’t need to give up 2% on every invoice. But sometimes it makes perfect business sense so you need to make the opportunity available to them every time.
Automating Accounts Payable with iPayables gives you the efficiency and speed you need to capture more discounts than ever before. With just the click of a mouse suppliers agree and commerce flies on.