Purchasing Insight

Purchase to Pay, Purchasing & Procurement Process, Electronic Invoicing

Browsing Posts tagged Financial Supply Chain

This is the second article in the series reflecting on how we got here.

In the facebook age, when the digital natives – those who don’t remember a time before the internet – are emerging as the new generation of business leaders, thinkers and politicians, it can be easy to forget how today’s business technology evolved. And it’s easy to dismiss it. But knowing a little more than best practice and understanding why we do stuff the way we do is enlightening and helps inform us about the future evolution of business technology. continue reading…

Like many things in business, this isn’t a new idea. I clearly recall signing secrecy documents in order to take part in discussions with a bank in 1997 about how a new factoring model that would leverage the flexibility of the internet. It would transform trade credit. More opportunities emerged early into the new century but it wasn’t until the last couple of years – 10 years after I first confronted reverse factoring, that I’ve seen it implemented as a real business tool. That why it’s OK to call it new and now is an opportune time to look at it again. continue reading…

Purchase to Pay, P2P and Dynamic DiscountingIn a recent report by Celent they report the surprisingly low rates of adoption in parts of Asia. China, Japan and India in particular are relatively slow to integrate electronic invoicing.

Why is this suprising?

The reasons for the slow adopting include tardy implementation of purchase to pay processes and importantly, a general hesitancy for business to engage closely with their banks as technology partners. But these issues should not be seen as problems. Rather, they are opportunities.

In the 1990s, the huge boom in business in what was described as the technology sector, stole swathes of market share from established competition largely because new businesses were able to take advantage of new technology without the cost and distraction off having to decommision legacy systems. Using established marketing and business practice and attacking mature pre-existing markets, they were able to leap frog the established competition by standing on their shoulders and launching themselves into the new millenium. This is exactly what China and India can do now.

Electronic Invoicing – With or Without the Banks

Fully automated and integrated purchase to pay processes utilizing electronic invoices to integrate and streamline the financial supply chain  – with or without the banks (see Dynamic Discounting – Kicking the Banks When They’re Down) – is much easier in a growing economy compared to establish economies with legacy business processes and legal frameworks and provides a platform for business with an even lower cost base than Asia enjoys today.

Purchase to Pay, P2P and Dynamic DiscountingLate payment is a blunt P2P weapon and it’s disappointing to read in Supply Management that small suppliers are waiting longer than ever.

Nick Martindale reports that research performed by BACS in the UK found small and medium-sized companies had to wait an average of 41 days beyond the agreed payment date before invoices were settled in the second half of 2009; a rise of 9.5 days on the previous half-year’s figures. Large organisations were named as the worst offenders by 37 per cent of small firms; twice as many as the second-placed group in the list (17 per cent said sole traders and other small businesses were mostly to blame). It is pleasing to note that government departments and not-for-profit organisations were seen as the main problem in just 6 per cent of cases.

So what is going on? Are large organisation flexing their muscles to hang on to cash that bit longer? Are they employing their vast array of procurement technology options to fine tune their financial supply chain to optimize their treasury mangement strategy?

They wish!

I’ve heard companies brag about their ability to keep small suppliers waiting while they benefit from improved cash flow, yet in 100% of cases when I’ve had the opportunity to look under the hood, late payment is either directly caused by or inspired by incompetance. More often than not, an incompetant finance team, under resourced by an incompetent CFO who doesn’t appreciate the supply chain pain that their under resourcing costs.

I want to ask the CFOs responsible for the increase in late payments a question: Paying early and using Dynamic Discounting can give you a return on capital of over 30%. In 2010, when interests are practically zero, how does that compare to the return you get paying 41 days late?