Saving time, money, and effort are always focuses for businesses. Businesses are taking advantage of these focuses with AP automation technology. Electronic invoicing systems streamline AP processes and expand a business’s financial capabilities including acquiring discounts. Let’s discuss how these discounts are collected by examining the benefits of dynamic discounting.
What is Dynamic Discounting?
When a buyer pays their supplier earlier than the due date, they receive a discount set and agreed upon by the supplier. The amount of the discount is dynamically calculated using a rules based software solution set by suppliers.
Adopt a Cloud-Based AP Automation Solution
In order for buyers to leverage the benefits of dynamic discounting they must first adopt a cloud-based AP automation solution. The average life-cycle of manual invoicing is much too long for businesses to take advantage of dynamic discounting. According to a recent industry report, highlighted in a Business Wire article, approval times went from 45 to 5 days with manual vs. electronic invoicing.
The report highlighted the main pain-points with manual invoicing:
- “Invoice approval cycle time
- Incomplete/missing information on invoices
- Lost invoices
- Invoice exceptions
- Manual routing of invoicing for approval and payment
- Decentralized receipt of invoices”
Adopting AP automation resolves and streamlines these pain-points, and allows businesses to leverage the benefits of dynamic discounting.
Increase Supplier Integration
In order to leverage the benefits of dynamic discounting, businesses must integrate their suppliers into their cloud-based AP automation system through a supplier portal. Premium AP automation solutions, like iPayables, onboards suppliers for free as part of their service. Getting suppliers/vendors onboard with the e-invoicing solution is key to leveraging the benefits of dynamic discounting.
While businesses can’t force their suppliers to integrate and use their electronic invoicing system, they can pick and choose suppliers who will. Most suppliers will integrate once the benefits of offering dynamic discounts are explained to them, and they see how easy the P2P process can become with the cloud-based AP automation software solution.
Benefits to suppliers include:
- Superior control over cash flow
- More predictability with payments
- Visibility with invoice life-cycle
- Access to invoice history and progress without contacting AP departments
- Real-time information of supplier to vendor transactions
- Reduces late and lost payments
Once suppliers understand the benefits gained by integrating and using dynamic discounting in their P2P processes, most will gladly make the transition. Those that won’t can be exchanged for those that will, unless their services or products are unique and can’t be replaced, or their partnership has value in other ways that supersede the benefits of dynamic discounting – 100% supplier adoption means more savings from discounts and increased workflow efficiency.
Fine-Tuning the Dynamic Discounting Tool
According to a Payments Journal article called: “What Digitizing Financial Functions Can Tell Us about Productivity in the Office of the Future”, written on June 15th, 2018 by Dennis Amorosano, we learn:
“…the Institute of Finance and Management (IOFM) reported that 84% of the average accounts payable (AP) professional’s time is spent on transaction processing alone. PwC concurs, reporting that inadequate AP processes and systems result in 27% of time spent on waste and activities that could be automated.”
Basically, after AP automation tools are integrated into the workflow, businesses will have some extra time to focus on optimizing other aspects of their P2P processes. One of these should be to fine-tune the dynamic discounting tool.
By leveraging the analytical data gained from e-invoicing, strategies can be developed to optimize savings. These can include setting favorable automation rules tailored for each supplier, choosing optimal payment dates, and streamlining the invoice life-cycle.
Dynamic discounting can save businesses time, money, and effort in their AP processes. Suppliers will also benefit from offering this incentive and using cloud-based AP automation tools. The first step is for businesses to adopt the technology, then to integrate their suppliers, and finally to fine-tune their AP automation tool for optimal results. If interested in learning more please contact iPayables today.