When most companies first decide to automate, they set their sights on reducing costs by eliminating paper from their AP process. This is one of the main reasons most people automate in the first place, and since the results are practically immediate this plan of attack makes perfect sense.
But what do you do after the process is in place, humming along efficiently in a way you never thought possible? Do you simply kick back, twiddle your thumbs, and remark about how easy life is now that you have automated?
No way! Now’s the time to really get to work and get the most out of AP automation. With a streamlined and automated workflow in place, you can now focus on higher-level tasks that you would otherwise never have the time or means to complete.
One such task that automation allows for is the optimization of your company’s working capital. In “ePayables 2015: Higher Ground,” Ardent Partners notes that AP departments that work more collaboratively with vendors and procurement have “an ability to optimize working capital across the P2P process by developing proactive payment strategies and pursuing dynamic discounting opportunities.”
The report from Ardent Partners discusses two primary ways organizations can optimize their working capital: dynamic discounting and supply chain finance.
In short, dynamic discounting enables you to take advantage of early payment discounts. Why wouldn’t every organization take advantage of such discounts, you say? For many, the manual, paper-based process prohibits them from doing so. Taking advantage of early payment discounts means your invoice approval process must be quick and efficient, since most early payment discounts expire around 10-15 days.
Fortunately, automating speeds up the AP process immensely.
With supply chain finance, you can use a third-party funder to pay a supplier invoice the second it is approved. It’s a win-win: the supplier gets paid instantly, and you (the buyer) can float more money through the third-party since their terms are typically longer than yours (i.e. the standard net-30, net-60 terms).
As the report says, “Today’s top-performing businesses are the ones that view their supply chains as the source of extraordinary value.” AP departments are undoubtedly beginning to see that value as well. When asked about their current and planned usage, 15 percent of those surveyed in the Ardent Partners report said they currently use a supply chain finance solution – but 41 percent said they plan to use one in the next 12-24 months.
Both dynamic discounting and supply chain finance solutions are two ways you can better manage your working capital as well as your days payable outstanding (DPO). Given this, it’s no wonder that Ardent Partners say that “Early payment discounts, dynamic discounting, and supply chain finance represent the next wave of solutions and strategies for maximizing the AP function’s contribution.”