Perfect Payment Index
In recent years, B2B payment management has become a vital finance tool for increasing working capital and capturing discounts. Many organizations use electronic payment methods in order to cut costs, but highly efficient companies have gone a step further—they have eliminated standard payment terms. Instead, they employ a variety of payment methods to satisfy the diverse needs of their suppliers, all while optimizing their payment terms to maximize results. We call these organizations “Perfect Payers.”
Leaving Money on the Table?
One of the biggest advantages of managing payments strategically is the increased ability to capture early payment discounts. Dynamic Discount Management (DDM) harnesses the power of electronic invoicing to enable buyers and suppliers to propose flexible discount terms. According to our research, DDM solutions can yield annual returns as high as 36% on available cash.
When moving towards DDM and electronic payments, it is important to formulate a successful strategy. PayStream has built a tool to assist in this process called the Perfect Payment Index. A perfect payment is one that is made on time, uses the cheapest payment method possible, and achieves the highest possible discount. Crafting your organization’s perfect payment strategy involves a number of potential actions:
– Offer suppliers a range of payment options. Consider what is ideal for your organization but also what is likely; try to land somewhere in the middle.
– Effectively communicate to suppliers the benefits for their receivables with each offer.
– Incentivize suppliers by offering tiered payment timelines. Offer quicker payments for methods that benefit your organization and standard payments for manual or paper-based methods.