Early payment discounts can help your company save hundreds – if not thousands – of dollars every month.
Spend less on the products you need to buy, and increase your working capital. Take the money that you have sitting in a low-yielding corporate account, waiting to be sent to a supplier, and leverage it to generate a higher rate of return. It’s a valuable strategy for your business – but it can be easier said than done.
Dynamic Discounting as an Early Payment Incentive
It’s common for suppliers to offer regular discounts for early payment. Sometimes, companies that offer early payment discounts are trying to motivate customers to pay faster so they can reduce their DSO. Other times, they’re trying to address cash flow issues. Either way, your company can benefit from the incentive.
2/10 net 30 is a common example. This incentive would allow you to deduct 2 percent of the invoice’s total amount if you pay within 10 days. (If you pay within 30 days, you owe the entire balance. If you pay after that point, you may owe a late fee.)
If you’re offered 2/10 net 30 terms on a $1,000 invoice, you can pay just $980 if you’re able to issue that payment within a week and a half. If your company has the cash on hand (or a readily available line of credit), those terms are firmly in your favor. That 2% early payment discount for paying 20 days early? If you do that just 18 times in a fiscal year, you get an annual return of approximately 36%.
By taking advantage of dynamic discounts, your Accounts Payable department can directly impact your company’s profitability. The only problem? 10 days isn’t a lot of time.
The Problem with a Long Invoice Processing Cycle
When you get an invoice in the mail, it may be several days before someone finds it. And if you rely on manual invoice processing methods, it can take several more days to move it through your organization. Getting all of the approvals & validations that an invoice needs before it can be paid is painstakingly slow.
When you’re working with a short time frame, a single delay (like a processor being out of town) can prevent you from capturing those valuable discounts. And when you have hundreds of invoices to deal with every month? There’s a pretty high chance that at least a few of them fall through the cracks. That’s why many companies have a hard time processing their invoices quickly enough to qualify for early payment discounts.
A sad reality? Industry research shows that the average invoice processing cycle time is 12.4 days, from receipt till payment. It’s frustrating to miss the mark by just 2.4 days – but it’s also encouraging, as it means a few strategic changes can get you over the hump.
So how can you make your process more efficient?
Invoice automation lets you streamline your accounts payable workflow. You don’t have to manually collect your invoices, and you don’t have to manually confirm that the charges are correct. The technology handles all of the behind the scenes, automating the most time-consuming steps with ease. And if a key employee is out of the office? They can still process documents remotely, keeping your workflows…well…flowing.
At IntelliChief, we’ve helped our customers reduce their payment cycle times by as much as 80 percent. One customer was even able to capture $5.4 million savings in the 2016 fiscal year – just by using our automation software to process their incoming invoices.
Our AP automation software works directly with your enterprise content management system (ECM) to make sure every incoming invoice is correct. It even checks for “process-by” target dates – letting you finally start capitalizing on your early payment discounts, without extra work for your employees. It’s an easy way to start meeting your cash flow objectives – and we’re here whenever you’re ready to get started.