CloudX Blog

Why Accounts Payable Process Leaders Are Capturing More Early Payment Discounts

Posted by Chris Cosgrove

Nov 24, 2015 12:39:23 PM

Accounts Payable process automation, especially virtual card payments, are the goose that laid the golden egg!

It’s curious how organizational priorities can change over time and seasons.


 It certainly has to do with organizational directions, business objectives, and impacts from the economic climate as a whole.  In cases of tepid financial performance, cost-cutting initiatives tend to come to the fore.  In cases of solid growth, innovation and the desire to stay on the cutting edge as a sector leader can drive organizations to invest heavily into research and development to achieve that end.  The point is that behavioral patterns, especially as it relates to fiscal conservatism or liberalism can vacillate wildly depending on internal or external pressures.  However, one area that is always en vogue and one which is currently a focus for Accounts Payable process leaders is the area of early payment discount capture, as indicated by Aberdeen Group’s recent research report, Reap the Benefits of Invoice Excellence with AP Automation - Nov 2015.


The study cites that 42% of leaders define capturing early payment discounts as a top priority for Accounts Payable process management.


This is not a surprising metric for the folks at CloudX and definitely something we’ve been championing since day one here.  The key thing to make capturing early payment discounts a reality however is a clean process.  Antiquated, manual processes with zero visibility into bottlenecks and chokepoints mean that it takes longer for your invoices to make it from presentment to posting.  Since early payment discounts have stringent deadlines to be able to capture the discount within, the game will often be over before it started for those who are encumbered by a paper-based, manual accounts payable process.   Conversely, for those sage AP process leaders who had the temerity to press for AP automation tools when it wasn’t popular, things couldn’t be better.  


Don’t believe me?  Consider Aberdeen’s survey metrics on days to process an invoice (the total time to process an invoice from receipt until approved for payment, including weekends):

Leaders - 5.95 days - defined as top 35% of survey respondents

Followers - 17.83 days - defined as bottom 65% of survey respondents


While upon first glance, that is not a staggering differential in terms of processing days, in the quickly expiring shelf life that is eligible days for remitting a qualified early payment discount, time is of the essence.  As such, it’s no wonder that leaders capture over 90% of eligible discounts whereas follower capture only around 15% of eligible discounts, per survey data also from Aberdeen in 2012.


Why Capturing Early Payment Discounts is a good idea!


It’s free money to the good.

From our perspective your account balances have to get paid regardless to maintain positive supplier relationships, so if you’re willing and able to part with your money a little quicker, then the upside is significant.  On a personal level, would you walk by a $5 bill on the street if it was just laying there.  Of course not!  You’d pick it up, look around for an owner and if none was found, pocket it and be on your way with your afternoon latte covered for the day.


Discounts add up.

With the average discount ranging between 1-3%, it’s not an insignificant amount we’re discussing either.  Also, consider that these are not topline revenues before expenses.  They are revenues generated bottomline from better expense payments so that’s a consideration as well.  In other words, companies plan and execute growth strategies and marketing campaigns to support top line growth that has antecedent costs attached.  This is a way of obviating some of that to attain a similar financial impact.


It can transform your mindset about how impactful transactional processes can be.

For those who pursue this type of automation and capture initiative, it’s the tip of the iceberg.  The real meat on the bone, or should we say the filet mignon of value transformation within the accounts payable process is virtual credit card payments.  The impact from your spend perspective can be above an additional 1% of eligible spend across ALL eligible spend, not just select vendors who agree to advanced payment terms.  This is huge from a financial impact perspective as stated above.  One other advantage to consider on the virtual payment front is the reality that it can be the goose that lays the transformation egg for your total accounts payable process as the proceeds generated through this initiative can in-turn facilitate the funding of other AP automation initiatives.

So, if you’re all about maximizing value and getting out from under the constraints of just status quo invoice processing, then do something about it.  Check out the eBook below and start doing what leaders in the AP process space are doing today!


Free eBook on Unlocking Profit From Transactional Document Processes!

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Topics: Accounts Payable Process, AP Process, Invoice Processing, early payment discount, Virtual Payments, Virtual Credit Card

Forget Jack-o-Lanterns, Consider These 5 Scary Accounts Payable Process Facts

Posted by Chris Cosgrove

Oct 31, 2015 11:22:50 AM

Accounts Payable Process Facts are scarier than these pumpkins!

Forget Punkin Chunkin...This Is Getting Real...

Yeah, if you have kids, they’ve probably been buzzing in your ears for weeks about what costume they’re going to have this year.  Then again, if you’re a candidate for parent of the year, you might’ve been at your local retailer in the 11th hour picking through the dregs of the once vast costume array.  I mean, most kids don’t want to be a zombie pirate or Rocket the raccoon (no offense Guardians of the Galaxy, you’re just not as popular as other Marvel franchises).  Granted, certain scary costumes hold perennial appeal, but in today’s piece, it’s appropriate to look at some things which are scary, ugly, and downright noxious in the Accounts Payable process.  If this post had to have a title from a Zeppelin song, it would have been What Is and What Should Never Be.


So, in all their gory detail, here’s a shortlist of five things that are downright frightening about the Accounts Payable process.


  1. The average number of invoices with errors is approximately 3.6%(per IOMA).  Now, that number may not seem like a ton, but consider if you organization has $100MM in payables pumping through it over the course of the year.  If $3.6 MM was paid to the wrong vendor, or for the wrong invoice, or in the wrong get the picture.  The sum of these errors equals a total nightmare for reconciliation in the accounts payable process and unnecessary extra work to unscramble the eggs.


  1.  The industries with the highest average cost to process an invoice are Non-Profit / Education at $16.78/invoice and Government at $15.86/invoice.  While this doesn’t really come as a surprise, it underscores the need for accounts payable process improvement across all manner of organizations.  With many corporate leaders having no actual clue to how much their inefficient invoice processing is costing them, it’s high time that they wise up to these ap process leaches and identify ways to make AP strategic and profitable (and no, that is not an oxymoron, it’s entirely possible).


  1. Nearly 62% of invoice processing costs are made up of staff labor (per APQC).  The real issue here is how much time is needed to advance an invoice in process.  This includes data entry, data validation (matching the data from the invoice against disparate information like vendor master, PO table, and receiving data), GL coding, and approving.  The bottom line is that the accounts payable process is very fat from a time consumption standpoint and needs to be leaned out if you have any hopes of dropping your processing costs and improving your ap process cycles.


  1. For the average company, over 50% of eligible early payment discounts go uncaptured because of inability to process invoices and execute payment in a timely manner (per Aberdeen Research).  This means that significant opportunities to pad the bottom line are squandered, again because of a grotesque ap process.  Ironically, it’s our belief that, given the option, most CFO’s and Treasurer’s would likely want to capture discounts as they tend to be free monies to the payer, when done properly.  This again is a compelling reason to pursue automation.


  1. On average, only 32% of companies harness Accounts Payable process dashboards to monitor and optimize performance within their AP departments (per Aberdeen Research).  This only serves to underscore just how in the dark most AP and finance leaders are.  When you consider that most sales and marketing executives have rich insights into their customer and prospect pipelines you can understand that there is a definite gulf between investment in top line revenue generation systems and bottom line, back office systems.  This kind of thinking must be challenged, because AP automation need not be a financial boondoggle, but instead could be a transformative organizational profit center, that catalyzes further finance and operations improvements.

So, hopefully, in reading this you’re not too freaked out with the horror show that is the case in most accounts payable processes.  Given the many options and means available to improve in this area, companies can turn this function into an effective, efficient machine that becomes a critical, strategic asset to the health of the organization.

Free eBook on Unlocking Profit From Transactional Document Processes!

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Topics: Accounts Payable Process, AP Process, Invoice Processing, early payment discount, Data Entry

Using Accounts Payable Software & AP Services To Improve Visibility

Posted by Chris Cosgrove

Feb 9, 2013 1:13:00 PM


Accounts Payable Process Automation gives you X-Ray vision into all your AP data!

AP Automation gives X-Ray vision to Finance Leaders!


Finance Executives, Shared Services leaders, and AP Managers all pursue Accounts Payable Automation initiatives for a host of different reasons.  Most of these folks know from witnessing inefficient processes that there are ways and means to effectively transform the process especially in light of recent technology advances.  As we’ve discussed in this post, there are compelling gains to be had across three primary areas:

Financial – Reduction of Invoice Processing Costs, Elimination of Late Fees, Increase in Early Payment Discount Capture

Operational – Elimination of Data Entry, Elimination of Manual Validation Steps, Increase in Invoice Turnaround Times, Elimination of Paper in the Process

Strategic – Increase in Process Visibility, Elimination of Process Chokepoints, Increase in FTE Productivity, Promotion of Compliance Standards, Promotion of Green Initiatives (Environmental…not money…that’s already covered!)


Accounts Payable software/services to drive automation creates intangible value too!


For starters, by getting out from under paper, you blaze a trail to transforming the fundamental role of AP from being a data entry shop to being a strategic asset to the business.  With AP automation, and visibility, as we’ll discuss in a second, the role of being a strategic partner becomes one of optimizing business outcomes.  In AP land that means chasing down, promoting, and capturing early payment discounts and providing superior customer service (Internal & External).

In addition to that, just making the Approval & Routing process for invoices electronic is a stress relief for all involved parties.  By going with automated workflow, you lighten the load for Approvers, GL Coders, and AP staff who are constantly chasing invoices in a manual environment.   From an AP management perspective, this will help you isolate and remedy process chokepoints and invoice exceptions that require intervention.


Your vendors will thank you too!


Visibility has implications for your vendor community too.  Through the use of vendor portal technology, you can empower vendors to self serve and check on the statuses of their submitted invoices.  (Sidenote – this is kind of like the checkouts in your local supermarket…have you noticed a trend over the last 3 or 4 years with all the self checkout lanes?  If it’s been largely accepted there, don’t you think your vendors might benefit from the same philosophy?  Just sayin’…)  People like to have control over their stuff…and vendors are not different.  You get the added benefit of cutting down calls into your AP staff that takes them off task by providing visibility into invoice information through automation of the Accounts Payable process.


Your CFO might just be your new BFF!


For Finance & Treasury executives, visibility into AP pipeline (and of course drill down to individual invoices) data ushers in new levels of accuracy and reporting not previously possible.  This can facilitate enhanced cash flow management and truly optimize the use of working capital.  For many organizations (healthcare in particular), capturing early payment discounts is difficult not just because of a lack of visibility, but also because of tight cashflow reasons.  With visibility to invoice data you can selectively choose which invoices can be accelerated for EPD capture within the constraints that present cash positions will allow for better spend management.

Visibility also has impacts upon invoice search and retrieval.  When invoices are indexed and classified within an AP system, the time spent searching for and finding them is drastically cut down compared to manual, paper laden environments.  This can help any internal personnel that need access to AP data, and also can help shorten Accounts Payable audit cycle times as producing the required records is expedited and requires less assistance from AP staff.

For many on the fence about AP automation, certainly looking at core items such as data entry reduction, eliminating manual work (physical process validation steps), and cost reductions are all factors that compel leaders to embrace change and move forward with improvement initiatives.  Visibility in all of these areas that we’ve discussed should be considered as well, and for many will be the icing on the cake after deploying automation through AP software or AP services.


To learn more about visibility and the impacts it can have on your Cost Per Invoice (the cost it takes to move an invoice in your organization from receipt to approval) check out our eBook on Uncovering the 7 Costs to Process an Invoice here!

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Topics: Accounts Payable Process, AP Process, Improve Accounts Payable, ap system, accounts payable software, ap software, accounts payable improvement, ap automation, early payment discount, ap services, accounts payable audit

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