16 Oct 2010 Only When You Know How To Pay On Time Can You Pay Early
There’s much talk about dynamic discounting and how it can yield significant returns on investment but dynamic discounting is absolutely not the first step in extracting value out of purchase to pay optimization – it is the final step.
Let’s go back to basics and remember that P2P is not a core function of an organization. Rather, it supports the core functions such as sourcing and procurement, accounts payable and finance. Purchase to pay develops and installs synergy across the physical and financial supply chain and uses technology to support better ways of working to reduce the cost of doing business with suppliers.
One of the primary objectives of procurement is to procure goods and services at the lowest possible price within a framework of optimized risk, ethics, suitability etc. P2P supports this objective by helping to enforce compliance to contract and by delivering spend analysis techniques that allows procurement to extract the maximum value from a deal.
Purchase to Pay supports accounts payable and finance by enhancing accounts payable operations, delivering a higher percentage of right-first-time matches as well as greater levels of automation that delivers accuracy and control over payments to suppliers. Being in control means being able to pay on time and avoid problems associated with late payment such as financial penalties of supply chain disruption.
It is only when you have squeezed every drop of value out of a deal and when you have 98%+ right first time matching relationship with a supplier that you should consider the early payment options and further discounts.
Three Key Steps Before Implementing Dynamic Discounting
1. Ensure that your P2P KPIs report on right-first-time, late payments and early payments
2 Work with procurement to support strategic sourcing activities and don’t begin the dynamic discounting conversations until you are confident that some of the strategic relationships have been fully optimized.
3. Work with finance to optimize DPO and don’t begin the dynamic discounting conversation until you are confident that the payment terms and performance are as good as they can get.