Lessons Learned From Advanced Discount Management in Accounts Payable

Transcription

1 Lessons Learned From Advanced Discount Management in Accounts Payable Ma$ Wright, VP of Client Services, Taulia Inc. Greg Bloom, Senior Director Taulia Inc.

2 Abstract Hear first-hand, real-world experiences gained from advanced discount management at Fortune 500 companies. Learn how dynamic discounting can triple the average discount capture rate of 12% to more than 60% by extending the discount opportunity to invoices that originally don t offer discount terms. The presenter will explain the added positive effects advanced discounting has on supplier relationships, how it generates savings that can serve to fund AP automation initiatives, and how it accelerates and maximizes the ROI of invoice scanning/imaging and workflow, OCR, and e-invoicing.

3 Agenda o Why Discounting is mutually beneficial in today s economic climate o Why suppliers are willing to offer discounts in exchange for earlier payment o Why traditional discounts alone fall short o Discounting case studies o Full service supplier portals augment Discounting programs

4 Many Large Corporates are Hoarding Cash o Corporate cash balances have reached $2.12 trillion 1 An increase of 36% or $510 billion over 2009 Ratio liquid assets to short-term liabilities highest since 1956 o Investors pressure CFOs to invest profitably or payout to investors o However, difficult market environment to earn meaningful interest on big cash positions!"##"$%&' ()&*'+$&",$%&'$-'./0/' 1$%23%)%4")#' 4$56$5),$%&'!'#'%%&!'#%%%&!"#)%%&!"#$%%&!"#(%%&!"#'%%&!"#%%%&!"#$"%& '%%*& '%"%& '%""&!'#"'%& 1 Flow of Funds Accounts of the United States, Federal Reserve, June 9, 2011

5 While Their Suppliers Struggle to Stay Afloat o 2010 factoring market: ~$2.3 trillion 1 o Expensive financing Factoring: ~12-25% interest Credit Card: ~18% APR P-Card / Credit Card: 2.5% fee Bank debt: difficult to obtain 1 Source: Factors Chain Interna@onal

6 Suppliers are quite willing to offer discounts for earlier payment, but.. Only 12% of Invoices Offer Discount Terms 1 Current US Payment Terms 1 &'()*+,-$./01($ 2/-$./01($!"#$ %%#$ 1 Source: PayStream Advisors Survey of 200 large corporations

7 The Challenge with Traditional Discounts For Buyers o Ability to capture discounts later is unclear o Suppliers push back o Negotiation is labor intense and time consuming o Not all spend is under management o Impossible to scale across entire supply base o o o o o For Suppliers Some Buyers abuse them (pay late and take discount) Low payment predictability Cash need unclear at time of negotiation Expensive: Generally very high APRs Inflexible: Discrete rates and fixed discount days

8 Discount Success Variances Discounts captured varies dramatically between 2 different companies Buyer A Ø $6B annual spend Ø $45M annual discounts captured Ø Standard term 45 days Ø Average payment terms: 39 days Buyer B Ø $24B annual spend Ø $0.4M annual discounts captured Ø Standard payment terms: Ø 1. Net 45 Ø 2. Net 5 Ø Average payment terms: 35 days $7.5M Discounts per Billion in spend $.0625M Discounts per Billion in spend

9 9 Always Taking the Discount Doesn t Equal More Discounts Captured Buyer A Ø If discount is missed, invoices offered for early payment on a prorated scale Ø Standard term Net 45 Ø Actively promotes 2% 15 Net 45 Ø Enhances discount terms Ø If discount is missed, offered for Early Payment on a prorated scale 35% of spend on discount terms Buyer B Ø Takes discounts after they re missed Ø Standard term is Net 30 16% of spend on discount terms

10 Traditional Discounts: 2% 10 Net 30 # INVOICE APPROVALS - post automation - # INVOICE APPROVALS - pre automation - $ Many invoices are approved past traditional discount dates Days

11 Taulia s 4-step Discount Terms Methodology Turning the dial on your Discount Spend 4 No Discounts Possible 1 2 1) Offer Early Payments for suppliers on NET terms 2) Optimize discount opportunity and capture for suppliers on discount terms 3 3) Implement Dynamic Payment Terms (DPT) as standard payment terms for Procurement 4) Actively convert suppliers to DPT

12 Discounting Case Studies Discounting opportunities vary from Buyer to Buyer 1. Missing discounts due to lengthy cycle times 2. Few invoices on discount terms 3. High Straight Through Processing rates on PO spend for invoices on discount terms 4. Term extension campaign

13 Missing Discounts due to Lengthy Cycle Times Enhance Payment Terms to capture discounts after the cliff 3.0% 2.5% 2.0% 1.5% Hit- or- miss discount # INVOICE APPROVALS Sliding scale discount 1.0% 0.5% $ $ Payment happens upon approval 0% Days

14 Few Invoices on Discount Terms Offer Early Payments via Dynamic Discounting

15 High STP on PO Spend with Invoices on Discount Terms Enhance Payment Terms to capture premium discounts before the cliff 3.0% 2.5% 2.0% 1.5% Sliding scale discount Hit- or- miss discount $ # INVOICE APPROVALS Early Payments are offered via the portal upon approval before and after the cliff 1.0% 0.5% $ $ 0% Days

16 16 Term Extension Combined with DPT Offer Simple Term Extension o Significant supplier backlash o No Alternative for suppliers who wish to be paid earlier o One time improvement in working capital Term Extension with a DPT offer o Suppliers who wish to be paid early take DPT o Cash rich suppliers are happy with extended terms o Provides good mix of discount invoices and longer terms DPO neutral

17 17 Portal Adoption Drives Discounts Why? o E-Invoices are approved more quickly o Suppliers see Early Payment button o Disputes are resolved efficiently, leading to faster approvals

18 18 Obstacles to Portal Adoption o Invitation mechanism vs. paper mailing o Breadth of portal service offerings: portal stickiness o Availability of alternative means to portal services; ie, AP helpline, acceptance of paper invoices, etc. o Obstacles to supplier initiated enrollment

19 19 Portal Adoption Case Studies!"##$%&'()*+#,+-(./&'(0%1&( %!!"!!#$ -!"!!#$,!"!!#$ +!"!!#$ *!"!!#$ Buyer A: o Full range of portal services o 100% addresses o Collaboration with procurement )!"!!#$ (!"!!#$ '!"!!#$ 234/5$6$ 234/5$2$ Buyer B: o No PO services, no einvoicing &!"!!#$ o 40% addresses %!"!!#$ o No push by procurement!"!!#$.//01$ %$ &$ '$ ($ )$ *$ +$,$ -$ %!$ %%$

20 One-stop-shop without fees is key for Early Payments Suppliers love Suppliers hate o Access to Early Payments and Dynamic Discounting o Paying for that o 24/7 visibility into their A/R and POs o Online invoice status and payment details o E-Invoicing options incl. flipping a PO o Multiple up- and download formats (ideally across-buyer standards) o Comprehensive support

21 Complete Portal Solution is Sticky!"#$%&'()#*+,)-'.-)/'01'(233&+)#-' 4+*+.(01( '!"#$%&%"2.(/31( 4%-=,*'(>'--+2'-.(?1( 9+56'"*(!":$;6+7$".(<1( 45"+6%&( 4%-&$,"7"2.(81(

22 Customer Case Study U.S. West-Coast Utilities Company Challenge o Previous provider charged fees to suppliers o Dynamic Discounting only available for 55% of invoices Lessons Learned o Supplier fees are counterproductive Highlights o Only 3.5 months from contract signature to go-live o 99% of suppliers transitioned within 5 weeks o Additional discounts of first 5 months > 10x the annual license 22

23 23 Summary o There are huge differences between discounts captured from buyer to buyer o Buyers with the shortest payment term days does not mean they capture the most discounts o Keys to best practice in discount capture include: The right technology solution that provides robust discounting tools The right Enterprise Terms Management program that leverages discounting tools The right collaboration between Finance and Procurement to accomplish the change required to capitalize on the discounting opportunities

24 Q&A Matt Wright VP of Client Services, Taulia Inc. Greg Bloom Sr Director Solutions Consultant, Taulia Inc.