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Why Accounts Payable Process Leaders Are Capturing More Early Payment Discounts

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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 in vogue and one which is currently a focus for Accounts Payable process leaders in 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 making 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.  

 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 the top 35% of survey respondents
  • Followers - 17.83 days - defined as the 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 followers 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 for the business.

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 top-line revenues before expenses.  They are revenues generated bottom line 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 spending across ALL eligible spending, 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, schedule a free demo of our Accounts Payable Automation solutions and deliver efficiencies for your business.

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