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Increasing Capture of Early Payment Discounts: Electronic Invoicing Can Make a Difference

Payment Discounts

No one likes leaving money on the table; it hurts even the largest of firms. But that is what many organizations are doing when they miss the opportunity to capture discounts offered by their suppliers for early payments.

In today’s economy when interest rates are extremely low, taking an early payment discount like 2%10 net 30, which translates to a 36 percent APR, seems like a no-brainer, especially for companies that have a favorable cash position. However, a recent report from PayStream Advisors says that most organizations are unable to capture discounts offered1.

So what’s preventing companies from taking the discounts available to them? Slow approval times, decentralized invoice receipts, and the manual routing of invoices ranked as the top reasons for missed discounts and late payments, according to the PayStream report.

Companies that are still dealing with incoming paper invoices and manual approvals are often unable to approve invoices within the typical 10 day window for early payment discounts, resulting in missed

Top Reasons for Missed Discountsdiscounts. Some companies have such a lengthy approval cycle that suppliers do not even bother to offer discounts knowing the buying organizations cannot approve and pay within the discount window.

Top Reasons for Discount

How can companies solve this issue? Automating the invoice receipt and approval workflow process can go a long way in accelerating the invoice processing and payment lifecycle. And this helps lead to better cash flow management, which means a more robust bottom line.

No wonder more and more organizations are looking at electronic invoicing as a means to help improve the bottom line through early payment discounts. According to another PayStream Advisors report, paper invoices continue to decline from 59 percent in 2012 to 52 percent in 2013, as electronic invoicing gains more traction. The report also revealed that over one-third (35 percent) of companies surveyed have made significant investments in accounts payable (AP) automation, and 23 percent are currently evaluating the use of AP automation technology2.

So where do you stand when it comes to discount capture? If your AP department is unable to capture a large portion of discounts, it may be time to take a look at automation options.

Stay tuned for the next article on discount management, which looks at the differences between traditional early payment discounts and dynamic discounting.

Join the Invoice and Payment Automation  Linkedin group to connect with other professionals in the accounts payable, finance, treasury and procurement space and engage in thought provoking discussions.

 

 

 1 AP and Working Capital: Increasing Revenues from Early Payments, PayStream Advisors, Inc., 2014

2 Invoice and Workflow Automation Benchmark Report, PayStream Advisors, Inc., 2013

 

 

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