It’s no secret that an organization’s ability to survive and prosper often depends upon their willingness to find and utilize new revenue streams. One such innovative and often unrealized revenue stream is the dynamic discounting (or early pay discount) feature offered by iPayables and a very few other AP Automation providers.
Dynamic discounting provides ample time for a supplier to be notified that the invoice has been approved and can be paid early with a discount. That discount is controlled by the customer, who typically require rates far less than what is being offered by factoring agencies. Suppliers can either opt for the discount, or select a date to be paid and the application will let them know what the exact discount will be. This makes cash flow forecasting far more accurate and efficient.
Dynamic discounting is the definition of the preverbal “win-win.” Both the customer and the supplier benefit by offering an early pay option. The customer benefits by consistently taking advantage of the additional discounts captured (which would bring a smile to any CFO’s face) and the supplier gets the financial flexibility/ stability of having that payment clear faster.
Over the last 10 years, the industry has seen the processing of paper invoices steadily decline as more companies have automated their payables processing using an E-invoicing (AP automation) system such as InvoiceWorks. With a click of a mouse, invoices and payments can be viewed and approved which affords the AP department using the application, additional time they would not otherwise have if processing with paper.
The time savings results in flexibility that enables the customer to offer early pay discounts to their suppliers who might need a payment to process faster and are willing to pay a little extra for it. Discounts previously unavailable due to a slow paper processing, are now being captured with the average approval of invoices down from 22 days to just under four.
BENEFITS OF DYNAMIC DISCOUNTING:
- BUYERS CAN PAY THEIR SUPPLIERS EARLY IN EXCHANGE FOR A DISCOUNT.
- BUYERS CAN BENEFIT FROM DOUBLE-DIGIT, RISK-FREE RETURNS.
- ORGANIZATIONS CAN EARN MORE EARLY PAYMENT DISCOUNTS.
- WORKFLOW IS STRENGTHENED AND BUYER/ SUPPLIER RELATIONSHIPS IMPROVE BY PROVIDING SUPPLIERS WITH QUICK, EASY ACCESS TO CASH.
- AVERAGE INCREASE FOR WORKING CAPITAL IS FROM 10 – 30%.
A few years ago, one of our clients (the world’s largest restaurant chain) picked iPayables as their EIPP provider and started utilizing the Dynamic Discounting feature. Early Payment Discounting increased their cash flow enabling them to have a quicker approval time with better visibility and reliability. This restaurant chain has effectively transformed their accounts payable department into a revenue generator. In fact, in the last year they generated nearly $200,000 from discounts alone! By taking advantage of dynamic discounting, this organization is actually generating more money then what they are paying iPayables to use their top-of-the-line AP Automation solution. Along with the other financial benefits of using an electronic invoicing application like InvoiceWorks, dynamic discounting is a proven revenue stream that nearly any mid-market to enterprise organization should be taking advantage of.