For procurement teams, dynamic discounting is one of the most straightforward yet overlooked ways to save money. Dynamic discounting follows the same idea of early payment discounts, where buyers will pay less by paying early. The only difference is the rules are a little less rigid, making cost savings easier to attain.
Consider that in the traditional setup of an early payment discount, teams could receive a static offer, something like earning a 3% discount by paying in 10 days. Otherwise, if they are unable to meet this deadline, the buyer will receive no payment discount and is then only required to pay the full amount within 30 days. The model, a previous standard, is now recognized as being outdated, especially as suppliers have increased prices to offset discount costs, making any savings minimal. Now, in its place, is a new model, referred to as dynamic discounting, which enables teams to cut costs with a more flexible payment arrangement that allows teams to reallocate funds from a future month to the current month. The result is that Accounts Payable becomes a revenue-generating center, enabling teams the ability to earn up to 3% of their spending back to their bottom line.
So, if this model is now presenting a new standard across procurement, why are teams still overlooking it as a major opportunity for cutting costs? We explore the answer in further detail below.
Processes, The Lengthy Obstacle
In looking at the current procure-to-pay model, the biggest obstacle teams are facing is the inability to have an invoice approved and paid in time to become eligible for a discount. Therefore, without effective processes and systems, teams often have too many manual steps to ever come close to the early payment date.
For those unfamiliar, consider that many business’ invoicing processes often start with receiving a paper invoice by mail or its PDF counterpart. Next, the invoice must be documented internally for processing, a step which requires teams to either scan the paper version of the invoice or manually input the data into one’s own Enterprise Resource Planning (ERP) system.
After being input, these same details must be reviewed and approved by the accounts payable team. Then, when it comes time to issue the actual payment, the amount may need to be coded for the right account, project, or cost center; for other businesses, this would be the step in the process where a Purchase Order (PO) match would occur.
From Lengthy Obstacle to Elimination
Taking these steps into consideration, the underlying root cause of the obstacles is how intensive the end-to-end process is. At present, many organizations have noted that processing an invoice, from the time it takes to receive an invoice to its posting on the ERP system, including checks, takes multiple weeks, and manual checks are also expensive in terms of human capital.
Therefore, because this process is long and expensive, teams often are already out of the window to receive a dynamic discount. Therefore, to take advantage of this obvious but often overlooked step, teams must seek out ways they can automate and eliminate invoices whenever possible. Thereby eliminating a lengthy process and moving ahead right to payment.
Introducing Invoice Automation and Evaluated Receipt Settlement
Since time has become such an important factor, automated invoicing greatly reduces the time spent matching these details. With modern tools, automated invoicing can successfully extract data from a predefined Purchase Requisition (PR), Purchase Order (PO) and goods receipt to automatically generate an invoice that can be sent directly to a supplier.
Taking automation one step further, many teams have not only automated invoice creation but gone so far as to eliminate it. With the process of SAP Evaluated Receipt Settlement (ERS), teams have had the ability to eliminate the need for an invoice completely by proceeding to the payment step immediately following the automatic matching of the PO and goods receipt in a two-way match. The benefit is that under this system, teams have greatly reduced the amount of time it takes to complete a supplier payment, making them eligible to receive early payment discounts.
Start Cutting Costs Today
Unfortunately, with many spot solutions still being used throughout the procure-to-pay process, teams often find it difficult to take advantage of the full benefits of an end-to-end system. To help, the ConvergentIS team has made end-to-end solutions available out-of-the-box for high-growth businesses that need a solution today.