Six Tips to Capture $42 Million in Early Payment Discounts Annually

March 23, 2015 Allison Carpio

tips-to-capture-42-mil-early-payment-discounts

Most companies fail to take full advantage of discount opportunities when paying their suppliers. A recent sharedserviceslink survey of companies with annual revenue ranging from $1 billion to more than $50 billion admitted two clear shortcomings in their invoicing processes. First, at least 30% of their invoices weren’t eligible for discounting; nearly half reported that figure was closer to 70%. Second, all but one respondent acknowledged that they were leaving money on the table, with more than one-third of respondents capturing 30% or less of the available discounts.

But it doesn’t have to be this way.

Take Fortune 500 energy and utilities giant in Northern California, for example. In 2002, the company implemented early payment discounting and saved $1 million. By 2008, its savings had quadrupled to $4 million. In 2011, the year they transitioned to Taulia’s dynamic discounting, the company saved $32 million. And, in 2014, this figure skyrocketed to $42 million. Today, the company saves $10 million for every $1 billion it spends.

How did this company revolutionize its payables strategy so quickly?

They followed a set of best practices that optimized their dynamic discounting initiative. You too can benefit from these six strategies that can transform every invoice into a revenue opportunity.

1. Be flexible.

You need a flexible portal that accommodates all invoices from all your suppliers. If you only discount invoices that you receive through your portal, you’ll miss valuable opportunities to capture discounts. Find a system that incorporates not only invoices submitted through the portal but instead, all invoices in your ERP, regardless of where they came from.

2. Appoint a cheerleader…or a squad of them.

To effectively implement change in your payables process, you’ll need to undergo both internal and external change. Involving the procurement department early on is one of the essential keys to the utility company’s success.

For example, their Chief Procurement Officer owned the dynamic discounting program, and his procurement team focused on educating stakeholders and generating internal enthusiasm for the portal. It’s no coincidence they’ve been saving $10 million for every $1 billion in spend!

3. Grow the pie.

Driving education and adoption of the portal both internally and externally is key, and doesn’t stop after implementation. Include all of your departments and suppliers in the system; otherwise, you’ll have complicated, multi-tier processes that will cause administrative headaches. And of course, you’ll miss out on discounts.

4. Speed up the approvals process.

The key to maximizing discounts is approving invoices as early as possible. Unsurprisingly, companies who pay their suppliers as soon as an invoice is approved capture more discounts, faster. Remember, it all adds up!

5. Validate invoices at the point of entry.

Accepting invoices that have errors or that don’t comply with payment standards slows down the approval process, making it less likely that you’ll capture 100% of the available discounts. Think about how many times you’ve gone back and forth with a supplier about resolving these errors--how long does it take you to finally approve?

The reality is, it’s critical to validate invoice data before suppliers complete the submission process. Your system should flag any discrepancies between the invoice and purchase order or preconfigured payment terms.

6. Focus on onboarding.  

What’s the biggest roadblock to fully capturing available discounts once you have a system? Supplier participation. In order to maximize your discount capture, your suppliers must be using your portal. The following three steps can remove common barriers to participation:

  1. Choose a straightforward yet powerful platform that is interoperable with other systems. Make it as painless as possible for your suppliers to sign up.

  2. Don’t charge your suppliers to use the portal.

Educate suppliers early and often about the value proposition, including benefits such as greater efficiency and transparency, accelerated payments, and enhanced reporting.

Want more tips on how you can save millions with dynamic discounting? Learn the foolproof method to save your company millions each year in Blue Hill Research’s whitepaper: Operational vs. Financial Savings in P2P.  

 
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