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Dynamic Discounting and the New Cash Management Imperative

By Nilay Banker, founder and CEO, Inspyrus

Current low interest rates are forcing CFOs and enterprise finance departments to work harder and seek more innovative ways to drive greater returns to satisfy working capital needs. This new cash management imperative is ushering in new disruptive approaches to transform Accounts Payable (AP) functions from cost centers to profit centers by unlocking hidden value, unleashing new and significant revenue streams.

Today, technology is revolutionizing the procure-to-pay process, providing the requisite velocity and transparency to support dynamic discounting – where suppliers proactively offer early payment discounts on approved invoices awaiting payment.

While dynamic discounting has been in existence for several years, today it’s fast becoming one of the key tools of today’s new breed of innovative CFOs who are discarding the traditional practice of holding onto cash and delaying payments, which has proven to deliver inadequate returns in today’s fast-moving and demanding economy. Leading organizations are leveraging dynamic discounting to forge ahead with disruptive approaches that make early-pay discounts a real source of cash — capturing up to 2% of corporate spend directly back the bottom line and optimizing cash management in real-time.

While dynamic discounting can provide significant competitive advantage, unfortunately it remains out of reach for too many organizations today. Only 17% of the nearly 200 AP and finance executives, leaders, and professionals surveyed by Ardent Partners for its The State of ePayables 2017: The Convergence of Cash, Suppliers, and Intelligence report currently utilize dynamic discounting as an ePayables solution. Despite enormous opportunities for savings, there are many reasons why dynamic discounting remains elusive to many organizations. Unfortunately, for companies with manual AP processes, long invoice cycle times and frequent late payments make the prospect of capturing early payment discounts a “moon shot.”

Innovative organizations are recognizing the need to streamline procure-to-pay processes so they can seize these opportunities, and leapfrog Laggards to land in the Leaders category. Arming the enterprise with the ability for suppliers to dynamically request early-pay discounts fundamentally changes the game, providing a win-win for both sides of the Procure-to-Pay value chain (fostering business enhancing relationships). It delivers the fastest payments to suppliers, while maximizing discount returns for vendors — easily exceeding traditional (slow time-to-value) investment alternatives.

Of course to maximize the potential of this paradigm shift, dynamic discounting needs to be coupled with next-gen invoice automation to ensure companies capture every possible discount available. It’s this powerful combination that delivers the force multiplier necessary to turn Finance departments into profit centers.

Once the issue invoice automation is addressed, the other significant roadblock to fully capturing available discounts is supplier participation. To maximize your discount capture, supplier adoption is key. However, oftentimes organizations take all-or-nothing approach when likely a better option is a phased approach to onboarding suppliers.

To this end, it’s beneficial to profile suppliers to determine their readiness and capabilities to engage in dynamic discounting programs. You’ll also want to consider the strength and significance of your supplier relationships, looking at factors such as transaction volume and spending and cash-flow challenges. From there you’ll have a solid basis to prioritize suppliers so you can select the top 10 to 15 percent of suppliers where a dynamic discounting will drive solid returns. Once this initial effort is completed and initial wins are demonstrated, the organization can then look to expand the program to encompass a broader group of suppliers.

As we look to the foreseeable future, all signs indicate finance leaders will continue to need to look harder for returns and think more strategically about cash management. However, they need not look far – the secret is in unlocking the value of their payables through dynamic discounting.

Nilay Banker is founder and CEO of Inspyrus,a Fintech Software-as-a-Service (SaaS) company that specializes in transforming Accounts Payable (AP) and finance operations into profit centers. He is a Stanford Computer Scientist with over 23 years of experience with cutting-edge technologies and successfully delivering business software products for Fortune 500 companies. Previously, as director of product development—Oracle Fusion Middleware and WebCenter, Banker was instrumental in developing strategies and roadmaps for several products in addition to taking these products to market.

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