Emerging Payment and Discount Paradigms in the Supply Chain

Who would have imagined that creating a seamless purchase-to-pay process would be more challenging than putting men on the moon? While great strides have been made in supply chain management processes, accounts payable and supplier payments are still mired in labor and paper-intensive processes.

Not anymore. The good news is that several new payment management tools are starting to change the status quo. Today, many innovative financial managers now recognize AP automation as an area offering significant potential for not only generating bottom-line improvements, like cost containment and productivity enhancement, but also delivering numerous strategic benefits around spend and discount management.

Take the Discount, Dummy

Figure 1: Slow Processing of Invoices Causes Missed Discounts

Source: PayStream Advisors, Inc.

Drive to Capture Early Payment Discounts

Table 1: Early Payment/Supply Chain Finance Benefits

Drive for Straight-through Processing

Figure 2: Stages of AP Automation Impact Discount Capture and Working Capital Benefits

  • Validation of invoices, at the time of submission, based on preconfigured business rules and tolerance levels to correct any errors or exceptions before the invoice even reaches AP and the clock starts ticking.
  • Automated three-way matching of POs, invoices and good receipts documents, so that invoices can immediately be scheduled for payment. Some organizations even allow a two-way matching success (PO and invoice) to trigger the payment instruction for a small set of trusted suppliers.
  • Automatic approval of, or fewer levels of approval for, certain non-PO invoices, especially when it comes to small dollar invoices or suppliers with whom you have a long and strategic relationship.

Dynamic Payables Discounting

Figure 3: Comparing Standard Discounting Terms with Dynamic Discounting

In Conclusion...

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