Taking Advantage of Early Payments

Spend Matters is pleased to present today's guest post by David Brown, CEO of Oxygen Finance.

Today, organizations are struggling to take control of their procurement and payables process to generate income and add value to the business. This, combined with the need to improve bottom line results and working capital, has led to practices like Early Payment (charging suppliers a fee to receive payments early) must be understood to help organizations effectively deliver value back to the business from procurement.

Everyone, even those who have invested across the R2P process with back-end technologies and shared services environments can take advantage of Early Payments. The problem is that a lot of environments in these organizations aren't ready to handle the capabilities needed to effectively deliver this solution. How can a buyer guarantee they can compress a GRN/invoice approval process from 30 days to just three, for example? In reality they can't -- and this leaves us with some potentially negative consequences, including:

  • Suppliers losing faith in the process, as they don't receive payment as early as expected
  • Added cost and inability to scale due to variations in payment terms and daily rates
  • Inability to predict cash flow and income streams

Over the past ten years, procurement has mainly focused on systematic sourcing and analytical supplier management. This must be transferred to the transaction itself, Early Payment on a two-way match (PO & Invoice) to enable:

  • Cash in the hands of suppliers at a specific time, reducing queries and increasing transactional efficiency
  • The business process, whether GRN or invoice approval, to run in the background
  • Effective dispute resolution, should an invoice be overstated or coded incorrectly
  • Predictability in outcomes

It isn't possible to maintain ERP integrity and fully exploit Early Payments by over extending AP or e-Invoicing systems, deploying standalone solutions (i.e., the bank model) or running manual processes. It is important to integrate with the ERP and back-office financials while putting the buying organization in control, as this gives complete flexibility for the buyer to use their own internal funds or an individual or combination of banks. This also allows for the setting of specific rules and fees for individual business units/suppliers or categories and an ability to create complete transparency through existing MI systems.

If you manage Early Payments unprofessionally, you won't modify processes appropriately, integrate technology, provide the required underlying payment infrastructure, analyze the supply base or be able to accurately set the fees for Early Payment. If you get these steps right, however, you'll be ready to realize all the potential benefits of Early Payments. So what are you waiting for?

-- David Brown, CEO, Oxygen Finance

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