Accueil
Envoyer
Imprimer
PartagerCapturing Discounts
Early payment discounts give customers an incentive to pay early and credit terms like '2/10 net 30' can be an attractive proposition, allowing the payer to settle an invoice within 10 days to gain a 2 per cent discount on the goods. This equates to an annualised return of over 36 per cent, assuming the invoice is paid on the 10th day rather than at maturity 20 days later. Capturing these early payment discounts is therefore good use of a corporate's surplus cash.
Early payment discounts give customers an incentive to pay early and credit terms like '2/10 net 30' can be an attractive proposition, allowing the payer to settle an invoice within 10 days to gain a 2 per cent discount on the goods. This equates to an annualised return of over 36 per cent, assuming the invoice is paid on the 10th day rather than at maturity 20 days later. Capturing these early payment discounts is therefore good use of a corporate's surplus cash.
For corporates with credit capacity there is also an arbitrage opportunity. If you can borrow at around 6 per cent a year and use the loan to capture the early payment discount you can achieve a return in excess of 30 per cent a year. This is more profitable than squeezing suppliers to extend your DPO and better for suppliers, who can benefit from enhanced cash flow.
Gartner predicts that by the end of 2009, at least 30 per cent of the Global 2000 will have adopted dynamic early payment discounting as standard practice in accounts payable1. This suggests corporates want to capture early payment discounts where available, but they will also proactively negotiate discounts even where such terms are not currently offered.
Some corporates remain reluctant to use their own cash resources or credit capacity to fund early payment discounts. In response, some banks are developing working capital management solutions to finance the supply chain. With such a solution, the bank bridges the funding gap, often arbitraging the credit differential between the payer and the supplier. Subsequently, the cost of funds is reduced for the supplier, the payer pays less for the goods or extends the DPO, and both parties enjoy the working capital benefits.
Sadly, the working capital benefits associated with early payment discounts described earlier are out of reach for many businesses. Many organisations often have internal structures that restrict the approval of invoices in time to earn early payment discounts because it typically takes 10 days or more to approve an invoice and release payment.
Early payment discounts give customers an incentive to pay early and credit terms like '2/10 net 30' can be an attractive proposition, allowing the payer to settle an invoice within 10 days to gain a 2 per cent discount on the goods. This equates to an annualised return of over 36 per cent, assuming the invoice is paid on the 10th day rather than at maturity 20 days later. Capturing these early payment discounts is therefore good use of a corporate's surplus cash.
For corporates with credit capacity there is also an arbitrage opportunity. If you can borrow at around 6 per cent a year and use the loan to capture the early payment discount you can achieve a return in excess of 30 per cent a year. This is more profitable than squeezing suppliers to extend your DPO and better for suppliers, who can benefit from enhanced cash flow.
Gartner predicts that by the end of 2009, at least 30 per cent of the Global 2000 will have adopted dynamic early payment discounting as standard practice in accounts payable1. This suggests corporates want to capture early payment discounts where available, but they will also proactively negotiate discounts even where such terms are not currently offered.
Some corporates remain reluctant to use their own cash resources or credit capacity to fund early payment discounts. In response, some banks are developing working capital management solutions to finance the supply chain. With such a solution, the bank bridges the funding gap, often arbitraging the credit differential between the payer and the supplier. Subsequently, the cost of funds is reduced for the supplier, the payer pays less for the goods or extends the DPO, and both parties enjoy the working capital benefits.
Sadly, the working capital benefits associated with early payment discounts described earlier are out of reach for many businesses. Many organisations often have internal structures that restrict the approval of invoices in time to earn early payment discounts because it typically takes 10 days or more to approve an invoice and release payment.
Eliminating Paper
A recent study by Hackett REL Consultancy2 estimates that poor visibility of payables and receivables is the cause of €500bn of unnecessary working capital in the financial supply chains of Europe's top 1,000 corporates. One major reason for this inefficiency is the volume of paper. Gartner estimates that 90 per cent of all invoices are paper while the European Association of Corporate Treasurers (EACT)3 calculates that 27 billion invoices are issued every year in the EU. It is therefore, essential that today's invoice management solutions handle paper and electronic invoices with equal efficiency.
The key to this efficiency challenge is streamlining the paper and electronic invoice process. As well as reducing accounts payable costs and improving controls, it will help drive down the cost of goods. This all means that organisations can do more with less capital and deliver enhanced profitability and shareholder value.
As the adoption of shared service centres (SSCs) increases, many organisations have made progress in reducing AP processing costs by 'off-shoring' the keying-in of data into ERP systems. The benefits of such initiatives, however, are being eroded by salary inflation. Technology closer to home can prove valuable in the migration from manual data input and paper processing to more efficient electronic solutions.
Cost Savings
Benchmarking specialists estimate that the cost to process an invoice ranges from £2.50 to £7 and that a disputed invoice can cost as much as £50. Streamlining your invoice management can drive down the processing cost to less than £1 per paper invoice and even less for electronic invoices. Productivity can improve by 50 to 80 per cent, enabling a business to make large reductions in full time equivalents.
At a time when businesses are under increasing pressure to comply with industry regulation, such as Sarbanes-Oxley, a streamlined invoice management system can help keep tight controls, with configurable entitlements, segregation of duties and full audit trail. This control framework also reduces the operational risk of fraudulent invoices and invoices being paid twice.
Unlocking the Value
A powerful tool in unlocking the value in your financial supply chain is the accurate and timely approval of invoices, which in turn can deliver operational benefits such as lower processing costs, improved visibility and control and audit compliance.
At a strategic level, these best practices in streamlined invoice management help to optimise working capital management, enabling early payment discount capture to reduce the cost of goods. This collaborative approach to optimising working capital management can drive revenue and profitability, which ultimately enhances shareholder value, with bottom-line benefits for the entire financial supply chain.
***
1June 2005, Dynamic Early Payment Discounts will shake up Accounts Payable
2International Payments Conference, March 2006
3EC Consultative Paper on SEPA Incentives, February 2006
Unlocking Value in the Financial Supply Chain
Marcus Hughes, Bottomline Technologies - 28 Feb 2006
This article explores practical ways of enabling large corporates to reduce costs and improve internal controls in their accounts payable by streamlining the processing of both paper and electronic invoices. This approach can generate significant working capital benefits for both buyers and suppliers, by enabling the capture of early payment discounts. In this risk-reduced environment, where invoices are matched against purchase orders and goods received notes in an accurate and timely manner, specialist financiers and banks are recognising the opportunity to provide supply chain financing.
The rate of adoption of e-invoicing by both payers and suppliers has failed to live up to the expectations of early proponents. Although the web-based technologies supporting e-invoicing have been available for a decade, more than 85 per cent of invoices are still printed on paper and distributed by post. While there are some notable exceptions, it is generally very hard for a buyer to impose on all its suppliers a single format electronic invoice, since each supplier will have its own way of processing its outbound invoices. A more practical approach is needed to resolve this roadblock on the migration to accounts payable (AP) automation.
Improving Paper Processing
Recognising the continuing prevalence of paper invoices, corporates are adopting a more evolutionary approach to invoice management as they migrate towards the fully-fledged forms of e-commerce. Under this pragmatic model, inbound paper invoices are scanned, data is extracted, validated and matched, and then routed electronically for approval in an efficient and timely manner. A solution like this can either be structured in-house or outsourced to a specialist provider.
Today, with efficient systems for handling paper invoices and resolving anomalies, processing times can be reduced from days to just a few hours. The solutions that stand out are those that successfully combine handling both paper and electronic invoices. The powerful barrier hindering the growth of the e-invoicing market is getting suppliers on board. With an experienced invoice management solution, however, getting suppliers onboard can be as simple as asking them to redirect their invoices (in any format, whether paper, PDF or e-invoice, etc) to the service provider who will take care of converting paper documents into electronic formats, capturing and normalising the data to suit the requirements of the payer.
The key to this efficiency challenge is streamlining the paper and electronic invoice process. As well as reducing accounts payable costs and improving controls, it will help drive down the cost of goods. This all means that organisations can do more with less capital and deliver enhanced profitability and shareholder value.
As the adoption of shared service centres (SSCs) increases, many organisations have made progress in reducing AP processing costs by 'off-shoring' the keying-in of data into ERP systems. The benefits of such initiatives, however, are being eroded by salary inflation. Technology closer to home can prove valuable in the migration from manual data input and paper processing to more efficient electronic solutions.
Cost Savings
Benchmarking specialists estimate that the cost to process an invoice ranges from £2.50 to £7 and that a disputed invoice can cost as much as £50. Streamlining your invoice management can drive down the processing cost to less than £1 per paper invoice and even less for electronic invoices. Productivity can improve by 50 to 80 per cent, enabling a business to make large reductions in full time equivalents.
At a time when businesses are under increasing pressure to comply with industry regulation, such as Sarbanes-Oxley, a streamlined invoice management system can help keep tight controls, with configurable entitlements, segregation of duties and full audit trail. This control framework also reduces the operational risk of fraudulent invoices and invoices being paid twice.
Unlocking the Value
A powerful tool in unlocking the value in your financial supply chain is the accurate and timely approval of invoices, which in turn can deliver operational benefits such as lower processing costs, improved visibility and control and audit compliance.
At a strategic level, these best practices in streamlined invoice management help to optimise working capital management, enabling early payment discount capture to reduce the cost of goods. This collaborative approach to optimising working capital management can drive revenue and profitability, which ultimately enhances shareholder value, with bottom-line benefits for the entire financial supply chain.
***
1June 2005, Dynamic Early Payment Discounts will shake up Accounts Payable
2International Payments Conference, March 2006
3EC Consultative Paper on SEPA Incentives, February 2006
Unlocking Value in the Financial Supply Chain
Marcus Hughes, Bottomline Technologies - 28 Feb 2006
This article explores practical ways of enabling large corporates to reduce costs and improve internal controls in their accounts payable by streamlining the processing of both paper and electronic invoices. This approach can generate significant working capital benefits for both buyers and suppliers, by enabling the capture of early payment discounts. In this risk-reduced environment, where invoices are matched against purchase orders and goods received notes in an accurate and timely manner, specialist financiers and banks are recognising the opportunity to provide supply chain financing.
The rate of adoption of e-invoicing by both payers and suppliers has failed to live up to the expectations of early proponents. Although the web-based technologies supporting e-invoicing have been available for a decade, more than 85 per cent of invoices are still printed on paper and distributed by post. While there are some notable exceptions, it is generally very hard for a buyer to impose on all its suppliers a single format electronic invoice, since each supplier will have its own way of processing its outbound invoices. A more practical approach is needed to resolve this roadblock on the migration to accounts payable (AP) automation.
Improving Paper Processing
Recognising the continuing prevalence of paper invoices, corporates are adopting a more evolutionary approach to invoice management as they migrate towards the fully-fledged forms of e-commerce. Under this pragmatic model, inbound paper invoices are scanned, data is extracted, validated and matched, and then routed electronically for approval in an efficient and timely manner. A solution like this can either be structured in-house or outsourced to a specialist provider.
Today, with efficient systems for handling paper invoices and resolving anomalies, processing times can be reduced from days to just a few hours. The solutions that stand out are those that successfully combine handling both paper and electronic invoices. The powerful barrier hindering the growth of the e-invoicing market is getting suppliers on board. With an experienced invoice management solution, however, getting suppliers onboard can be as simple as asking them to redirect their invoices (in any format, whether paper, PDF or e-invoice, etc) to the service provider who will take care of converting paper documents into electronic formats, capturing and normalising the data to suit the requirements of the payer.
Cost Savings
Benchmarking specialists estimate that the cost to process an invoice ranges from £2.50 to £7 and that a disputed invoice can cost as much as £50. Streamlining your invoice management can drive down the processing cost to less than £1 per paper invoice and even less for electronic invoices. Productivity can improve by 50 to 80 per cent, enabling a business to make large reductions in full time equivalents.
At a time when businesses are under increasing pressure to comply with industry regulation, such as Sarbanes-Oxley, a streamlined invoice management system can help keep tight controls, with configurable entitlements, segregation of duties and full audit trail. This control framework also reduces the operational risk of fraudulent invoices and invoices being paid twice.
At a time when businesses are under increasing pressure to comply with industry regulation, such as Sarbanes-Oxley, a streamlined invoice management system can help keep tight controls, with configurable entitlements, segregation of duties and full audit trail. This control framework also reduces the operational risk of fraudulent invoices and invoices being paid twice.
Unlocking the Value
A powerful tool in unlocking the value in your financial supply chain is the accurate and timely approval of invoices, which in turn can deliver operational benefits such as lower processing costs, improved visibility and control and audit compliance.
At a strategic level, these best practices in streamlined invoice management help to optimise working capital management, enabling early payment discount capture to reduce the cost of goods. This collaborative approach to optimising working capital management can drive revenue and profitability, which ultimately enhances shareholder value, with bottom-line benefits for the entire financial supply chain.
Fabien Jacquot - Bottomline Technologies 00 33 (0) 1 55 68 11 42
At a strategic level, these best practices in streamlined invoice management help to optimise working capital management, enabling early payment discount capture to reduce the cost of goods. This collaborative approach to optimising working capital management can drive revenue and profitability, which ultimately enhances shareholder value, with bottom-line benefits for the entire financial supply chain.
Fabien Jacquot - Bottomline Technologies 00 33 (0) 1 55 68 11 42
