On average, 88 percent of AP spend involves non-discount terms. Reasons for this are related to the difficulty of processing fixed term invoices across the entire supplier universe.

In contrast, dynamic discounting:

• Enables large buyers to save money and improve return on cash by paying suppliers early
• Enables smaller suppliers to access less expensive financing alternatives by accepting time-variable “Dynamic Discounts”

“Comprehensive solutions yield the best result. The key value is to drive higher adoption rates. Having a high supplier value equation is essential,” says Bertram Meyer, CEO at Taulia. Solutions that provide visibility of their customer’s invoices and purchase orders, customer payment status and details, e-invoicing utilities such as flipping a PO to create invoices or facilitating multiple invoice delivery options and formats, and excellent support minimize the barriers for entry for suppliers.

When dynamic discounting is offered through a portal, it is only available on invoices submitted through the portal. In contrast an ERP centric solution addresses 100 percent of AP spend. The invoice medium should not be a factor. A comprehensive solution also provides an opportunity to leverage supplier information such as bank data, dispute resolution and supply chain intelligence.

Keys to Success

Pacific Gas & Electric (PG&E) was an early adopter of dynamic discounting. They have gone from realizing $3.9 million in discounts in 2008 to an expected $35 million in 2011. At this time, their greatest opportunity for capturing more discounts is expected to come from paying invoices before the fixed due date, in other words just a few days after invoice receipt as opposed to after the traditional early payment discount date.

According to Ben Shaffer, Accounts Payable Manager, “It is important to validate the data at the point of entry.” This is especially true when invoices are submitted through a portal. The best practice is to make the supplier resolve discrepancies before accepting the invoice submission. At the same time, internal alerts bring attention to these matters so they can be quickly resolved and the invoice approved for payment with an attractive discount.

• Partner with Purchasing – purchasing ownership and support is a critical success factor
• Contractually require electronic invoices
• Educate internal P2P participants about how to operate in a paperless invoice environment
• Offer suppliers 24/7 visibility and self-services features
• Capture discounts on all invoices – net-terms and classical terms as well
• Analyze the paper! Figure out where it’s coming from and how to get rid of it. That includes non-PO invoices

The ability to do all these things within a systems environment that is capable of processing dynamic discounts on the entirety of AP spend is necessary if you are going to optimize your discount opportunities.

Case Study Presented at PayStream Summit

Ben Shaffer, Accounts Payable Manager, PG&E and Bertram Meyer, CEO, Taulia presented their case study titled “Digging up Savings through Dynamic Discounting” at the annual PayStream Summit on September 20, 2011. The session was attended by over 40 decision makers from accounts payable and finance to learn about emerging technologies such as dynamic discounting to realize savings.