Editor’s Note: As 2015 draws to a close, it is the time of year when we revisit some of our best articles from the past year. Over the next two weeks, the Payables Place team will share an eight-part series of the “Best of 2015.” Today’s article is one from our AP predictions series, which originally ran on May 18.
The when and how of paying suppliers has not, in many enterprises, been given much strategic thought outside of mere process-driven standards. This level of thought may have sufficed at one point, but in a business world where enterprises are forced to be increasingly agile and manage their cash more effectively, thinking of payments solely in mere process terms shortchanges the organization immensely.
Business-to-business (B2B) payments look to become a much more strategic business process in the coming years. Supplier payments offer fertile ground for enterprises to become more innovative in how they manage cash, which can drive long-term value to large and small organizations alike. This value comes from effectively leveraging different payment solutions that can turn supplier payments from a scheduling question into one that requires strategic planning in order to create higher value and more financial visibility
There are many different payment solutions currently on the market to help with creating value from the B2B payments process. Supply chain finance, for example, allows enterprises to extend payment terms on their invoices without damaging the supplier relationship. The reason for this is because the supplier invoice is paid by a third-party—typically a bank—which allows the supplier to receive money much more quickly than standard payment terms (whether those be net-30, net-45, net-60, etc.). The buying organization is then able to pay the invoice later, and thus use their working capital for other reasons until the third-party lender bill comes due.
Dynamic discounting allows for enterprises to actually save money on paying invoices. Standardearly-payment discounts run out after a specified period of time (2% discount if paid in 10 days is common), but dynamic discounting allows the enterprise to take a discount on a sliding scale throughout the payment period. Essentially, dynamic discounting creates more access to early-payment discounts, which means that enterprises have more discounts available and can still capture discounts past even the standard discount period.
As a result of these new solutions, as well as recognition in the organization that every function can drive value, B2B payments has taken on new strategic importance in many enterprises. These enterprises recognize that the payments infrastructure can offer immense value to the organization at large, and paying attention to payments—outside of back-office approvals—can provide additional capital that flows to the enterprise’s bottom line. It is for this reason that B2B payments look to become a truly strategic business process in the years to come.
Check out these related articles for more:
Supply-Chain Finance: Saving Money and Providing Long-Term Market Opportunity
How Dynamic Discounting Can Save You Money
An Early Payment Discount Example to Sink Your Teeth Into
AP Predictions for 2015: Treasury Takes Over Accounts Payable
AP Predictions for 2015: ePayments Will Become the Default
AP Predictions for 2015: Networks Will Become the Critical Link to Suppliers
