If your B2B distribution company buys industrial supplies, specialty inventory or business services from suppliers, pay attention - there's big savings staring you in the face from early payment discounts.
These incentives let you score discounts of 2-3% off total invoice amounts just by paying way before the normal 30, 60, or 90 day due dates. For mid-size companies processing over 50,000 supplier invoices a year around $1,500 per invoice, those savings can add up fast- we're talking seven figures. However, manual processes and siloed systems can make it difficult for distributors to capitalize on all those eligible invoices.
So if you think you're leaving money on the table by missing out on discounts, it may be time to streamline things. In this article, we'll break down how early payment discounts work, look at building the right infrastructure to use them at scale, and share processes to reliably maximize the returns. With some strategic upgrades, those overlooked savings could be game changing. Let's dive in!
Understanding the Landscape
Before detailing the potential returns achievable, what exactly does “early payment” mean in business transactions?
First off, for these discounts to happen, suppliers need to actively offer reduced pricing in contracts if you pay faster. Most companies do, since quicker cash is worthwhile even with slightly lower margins, especially for smaller vendors or ones with volatile supply chains.
Second, buying companies have to have predictably solid cash flow to reliably pay early without stalling other priorities. But, as we said before, manual accounting and siloed data makes it hard to see upcoming cash needs clearly. This leaves CFOs struggling to balance spending, while invoices that could get discounts sit there idle.
With those key pieces in place - supplier discount agreements and visibility into cash flow timing - sophisticated companies build up the organization, tech, and cross-team coordination to use discounts at scale. They go from sporadic savings when extra cash magically appears to having early payment processes baked into daily operations.
Enabling a Timely Payment Infrastructure
Transitioning cash management disciplines to generate over seven figures in early payment returns requires strategic investment across four interconnected pillars:
1. Digitize Invoices
Transitioning from manual paperwork to electronic invoicing is a gamechanger. Instead of waiting days or weeks for snail mail to arrive and be processed, e-invoices through supplier portals, EDI protocols, or direct e-invoicing tools accelerate visibility. The minute an e-invoice hits your system, it's available for review and discount evaluation. No more hunting down buried papers or waiting for clerks to manually enter details. And e-invoicing adds consistency - no more lost invoices or mail delays throwing things off. Moving supplier invoices fully digital is step one toward timely, optimized discounting.
2. Modernize Approvals
Paper approvals are time-consuming and fragmented. Digital workflow tools smooth and accelerate the entire process. Configurable rules route invoices to all required approvers automatically based on things like spend categories, departments, or supplier. Approvers get instant notifications rather than waiting on paper. Digital tools also speed exception handling by automatically flagging mismatches or violations for your AP team. Instead of invoices getting stuck or lost in approval limbo for days, digitizing knocks approval times down to hours while preventing stalls. This prevents bottlenecks that would make paying early impossible.
3. Evaluate Discounts
Current supplier contracts likely contain overlooked or underutilized early payment discounts. Analyzing historical agreements uncovers terms you may not be fully capitalizing on due to suboptimal language or lack of process rigor in the past. With proper visibility into upcoming cash flows (see next point), your procurement team can work with suppliers to optimize contract terms for the greatest discount potential. Ongoing analysis also allows adjustment of internal workflows and rules to maximize realization of existing discounts. The time invested in properly evaluating and optimizing discount offerings creates enormous future savings.
4. Forecast Cash Flow
Early payment discounting depends on sufficient, predictable liquidity. This gives finance leaders confidence that funding scheduled accelerated payments won't jeopardize other priorities. But siloed data makes insight into cash timing and requirements difficult. Finance must partner with procurement and treasury to establish integrated cash flow forecasting cycles. By collaboratively reviewing upcoming payment obligations, available funding, and potential discounts across departments, organizations gain sharper visibility into liquidity. Finance leaders can then strategically allocate cash for early payments as opportunities arise.
Instituting Best Practice Processes
Here are some key processes that help maximize returns once the digital foundations are in place:
- Integrated ERPs identify 2-3x more discount opportunities right when invoices are received. No more buried or missed chances.
- Automated straight-through processing gets approvals done in under 8 hours instead of days. Fast track for early payment.
- Smart workflows instantly route eligible invoices to top priority status with notifications. No delays.
- Treasurers closely monitor upcoming funding requests to allocate cash for scheduled early payments.
- CFOs proactively negotiate expanded discount terms with Procurement before contract renewals.
- Controllers rigorously track KPIs like processing times, approval cycles, and discount capture rates. They optimize workflows based on insights.
With streamlined systems and data flows in place, orchestrated processes like these enable companies to reliably capitalize on early payment discounts at scale. Discount opportunities are automatically identified and fast-tracked. Approvals happen in hours, not days. And actual capture rates are monitored to continually optimize and improve.
Broader Impacts From Systematic Early Payments
Few other financial moves can match turning missed discount opportunities into seven-figure savings through optimized early payment processes.
And those big savings lead to tons of other benefits across the business:
- More cash flow improves liquidity
- Funding new services and innovation
- Stronger supplier relationships
- Higher efficiency as complexity increases
Finance leaders looking to tap into overlooked value in contracts and payments set their companies apart. They are ready for resilient growth even in volatile conditions. When working capital is tight, readily available liquidity gives them an edge over less sophisticated operations.
So in today's environment, establishing the visibility, digital infrastructure, and streamlined processes to capitalize on discounts separates the winners. Leaving savings on the table means falling behind. Intelligent early payments fuel growth and provide competitive advantage - that's the power of overlooked discounts transformed into seven-figure returns through automation.
We help leading B2B companies to improve supplier pricing and invoicing processes to strengthen visibility, cycle times, accuracy and their bottom line. We work with your current systems to identify the right processes and reduce wasteful ones, build secure and stable automated workflows, and bridge the gap between new and existing systems. If you have struggled with invoice processing and you’re noticing a hit on your bottom line, reach out to our professionals. Set up a time to talk to our team and learn more about how you can work faster and scale invoicing operations across your organization.