[Editor’s Note: Today’s article is from guest author Danny Thompson, vice president of software product management for APEX Analytix. If you have an interest in becoming a guest contributor, please contact us here.]
Is Your Dynamic Discounting Solution Best-in-Class?
by Danny Thompson
Dynamic discounting modules have been around for some time, and the benefits a buyer’s accounts payable (“AP”) derives from using them is well established. So, as more companies look at dynamic discounting services as a commodity, the logical question for suppliers of these modules is, “What’s next?”
All indications are that the real differentiator moving forward will be getting into the minds of the suppliers; figuring out what they want and offering them a range of options in a single portal which will allow them to manage their cash and resources in the most beneficial ways for their business.
Paying attention to suppliers’ needs upfront, versus as an afterthought, represents a significant change. Historically, dynamic discounting modules have thought only of what the buyer (client) is trying to accomplish while paying scant attention to what a supplier is trying to accomplish with a portal visit. But, differences—from modifying terminology (an “invoice” for a buyer is a “bill” to a supplier) to ensuring the portal screen a vendor lands on presents the most important and valuable information for them—can make all the difference in vendor adoption and working capital management that benefits both parties.
Below are a few examples of supplier-focused dynamic discounting options that can positively impact relationships between clients and suppliers.
- All-Invoice Advantage. Presenting every invoice/bill in a discounting portal (versus only approved invoices/bills or only e-invoices) has three benefits.
- The supplier receives more information, from whether an invoice/bill has been received, has encountered any approval roadblocks, when payment is expected, and when payment was issued.
- When exceptions arise, like pricing errors or missing shipments, suppliers receive additional information to help them resolve the discrepancy.
- With additional value being presented, supplier traffic on the portal gains momentum, thereby increasing the likelihood that dynamic discounts will be taken.
- Multiple Early Payment Options. While nearly all dynamic discounting procure-to-pay modules offer a “Get Paid Early” button, some innovative new early payment options provide suppliers with additional flexibility in terms of timing and currency. Options that allow suppliers to select a goal amount or a specific calendar day, with an automated selection of the most appropriate invoices needed to meet the supplier’s needs, are attractive to suppliers who have a specific need for cash, at a certain time and of a certain amount.
- Supplier-Initiated Discounts. New bilateral features give suppliers the option to compete for your early payment dollars. They can initiate early payment/discounting proposals instead of waiting for an invitation. “Traffic lights” even allow suppliers to know whether customers will accept their offer (green light) or reject it (red light) or review it against other offers made in the same period (day or week). This model allows suppliers the opportunity to communicate early payment discounts that make sense to them, and buyers to continue to capture discounts that exceed Treasury’s hurdle rate.
- Automated-Marketing Engines. This feature allows a company to tailor its communication strategy based on supplier segments and individual supplier preferences. Do suppliers prefer phone messages, emails, texts or mail? Which contact method should be used, in what order and how many times? Who is the best contact? Understanding how suppliers prefer to be contacted and putting algorithms in place that automate the outreach, leads to faster feedback and improved relationships.
- Discount Likelihood Scoring and Target Marketing of Discounts. A real difference-maker in dynamic discounting technology is a way to target discount offers to targeted suppliers. The most sophisticated analytical engines apply predictive analytics based on supplier activity and historical data, as well as other private and public domain information, to isolate supplier groups that can be presented with discount offers actively, rather than passively. These offers can be presented as specific invitations whenever a target supplier visits the portal, or can even be “pushed,” through email messages, smartphone texts, or voice messages. This powerful concept is borrowed from the sophisticated targeting present in business-to-consumer online and multi-channel marketing practice and can be very effective in presenting relevant and actionable discounts to the benefit of both suppliers and buyers.
- Flexibility in Cash Funding, including Supply Chain Finance. Funding of discounts, through a buyer’s own cash or via a supply chain finance source, is a key decision in the approved invoice finance/dynamic discounting marketplace. The fact is, a company probably has a strategy in mind already. They may want to use their own cash, at least to a certain limit, or a preferred bank, one with which they have a strategic relationship and where the cost of financing can create an attractive discount environment for the buyer and supplier. Or, they may have an alternate bank, which is willing to provide competitive rates to improve its position with the buyer. Or, the buyer may want to see what alternatives their dynamic discounting portal provider offers. In the best of circumstances, a portal provider is completely flexible, with the ability to support any combination of the above options, based on preference, or variations in business conditions. The more variety, the more options to the supplier as well as the buyer.
In addition to the features above, there is a push toward ongoing supplier research. “You need to know how suppliers use your system so that you can design for them,” says Akhilesh Agarwal, vice president of research and development at APEX Analytix. “Both buyer-initiated and supplier-initiated discounting works, as does Supply Chain Financing, but the real power to maximize discounts taken by suppliers is to be able to smartly and dynamically incorporate all three methodologies depending on supplier profiles, desired APRs, supplier activity, projected need and more.”
Also, feeding the desire to “pull” suppliers in, is the fact that companies are becoming ever more protective of their supply chain relationships. Procurement organizations are reluctant to disrupt strategic supplier relationships by imposing net-payment-term extensions or static-discount-payment-terms programs. Portals and new dynamic discounting options help dissolve any potential adversarial relationship and replace it with one of mutual trust and interest.
As a whole, the AP industry is not yet there in terms of prioritizing supplier considerations. But, with more research flowing in every day, change is coming. And as dynamic discounting becomes more supplier-friendly, companies can expect to start seeing requests from suppliers for portals—and the positive dynamics that come from a win-win relationship.
About the Author
Danny Thompson is VP of software product management at APEX Analytix and is responsible for defining, communicating, and leading the company’s software-product strategy and roadmap. Thompson has a proven track record in the procure-to-pay arena, with a strong background in ERP implementation, process automation and financial shared services. He can be reached at dthompson@apexanalytix.com.
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