To meet the needs of organizations that want to grow their purchasing card programs while increasing electronic payments and rebates, PayStream Advisors started to benchmark leading practices in supplier disbursements. The endeavor led to the creation of a new AP measurement tool, the Perfect Payments IndexTM and Payment Optimizer Model. Based on PayStream’s tracking of ePayment solutions, many tools have emerged to provide efficient supplier payments that can create incentives to buyers and suppliers to move to electronic settlement.
The Perfect Payments Index (PPI) is a direct measure of the percentage of an organization’s payments that are processed in the most efficient and effective manor. A perfect payment is one that is paid on time, uses the lowest cost payment method, and achieves the highest incentive discount. The index bundles the three measures to help managers define new areas of opportunity and provide focus. For instance, an organization may be utilizing an ACH ePayments program to ensure low cost payments. However, if the organization isn’t taking advantage of virtual card payment solutions such as embedded cards (which often include cash back incentives), the organization isn’t truly reaching its accounts payable automation potential and thus is not achieving “perfect” payments.
Utilizing purchasing cards (P-Cards) is an attractive method of payment among suppliers because they yield quicker payment, providing quicker access to capital that may otherwise cost more to achieve. However, the merchants that accept the payments generally fund the benefits purchasers receive (usually a discount percentage of 1.9 to 2.5 percent). Therefore, at some point the theory of diminishing returns takes effect—meaning that to the supplier, at some level the costs outweigh the benefits of accepting P-Card payments. It’s at that point that a supplier would likely start passing the costs of P-Cards onto the buyer and thus it would no longer be beneficial for either party. To combat this dilemma, PayStream invented the Payment Optimizer Model. Using this model, an organization can determine which payments should be made using P-Cards and which should not. In this manner they identify a “sweet spot” where savings and supplier satisfaction are maximized. See Figure Below.
In combination, PayStream’s Perfect Payment Index and Payment Optimizer Tool will deliver astounding insight into the efficiency of an organization’s payments process and its ability to capture available discounts. To learn more about these tools and receive a step-by-step tutorial of how to assess your organization, attend our complimentary webinar this Thursday, February 27th at 4:00PM EST. Registration if free but space is limited, click here.
