Every Purchase-to-Pay organization is likely familiar with working with the Treasury Department to set the appropriate discount terms with suppliers for early payment – with a rigid set of rules for when discounts can be taken, and the constant pressure to collect paper invoices, complete the matching process, and enter invoice details to ready invoices for payment. With the introduction of electronic processing, invoices can be received and processed in hours, not weeks, allowing for greater flexibility to maximize the benefits of flexible payment timing for your company and for your suppliers.
Dynamic Discounting is a process that allows buyers and sellers of goods and services to dynamically change the payment terms to accelerate payment based on a sliding discount scale. In the past, it has been difficult to create arrangements that work for both the supplier and buyer, and, because of a lack of an effective mechanism, it has been challenging for buyers to actually pay early. However, with the increased use of advanced technology provided by such companies as APEX, Ariba, OB10, and Taulia, those challenges have been overcome.
Two recent PeercastsTM in Peeriosity’s Accounts Payable (P2P) research area featured companies that shared their Dynamic Discounting implementation experiences, including some very insightful lessons learned. Interestingly, both were early adopters, using the Xign solution before it was discontinued, and then both independently implemented the Dynamic Discounting solution from Taulia.
Here are some of the reasons cited for selecting Taulia:
- Vendor Portal capabilities – look and feel
- Dynamic Discounting features, including ease of use
- Integration with SAP
- Cost, including the initial fees and ongoing cost of operation
- No fees to suppliers
For one of the feature companies, listed below are some of the highlights from their supplier enrollment process:
- Targets were set for the number of suppliers to enroll
- Taulia assisted with obtaining supplier email addresses
- Weekly messages are sent to suppliers in a marketing campaign to let them know of the new capabilities
- Suppliers enrolled via a web link that directed them to the Taulia portal
- Assistance was provided by the company and by Taulia, including training webcasts
- Used a gradual ramp-up to minimize the impact of implementation issues
- They targeted small and medium-sized suppliers for the largest discount opportunity and reduced risk
- Over 500 vendors were enrolled in the first four months, with over 100 invoicing via the supplier portal.
Lessons learned included:
- Implementations always take longer than expected
- How important it is to have a thorough approach to testing – don’t assume everything will work the first time
- The importance of having active participation in the project from Finance, Purchasing, and Information Technology
- Suppliers and internal team members are reluctant to change, so mandating the use of the supplier portal or creating incentives through differences in payment terms is required
- Continued effort is needed to drive adoption and benefits
- Standard and consistent processes work well; and complex, inconsistent processes don’t
To support each PeercastTM, iPollingTM questions were asked to better understand member experiences in this area. The first question explored how aggressively member companies were pursuing the use of advanced technology beyond the functionality delivered as part of their ERP system (typically SAP or Oracle). The results indicate that 29% of member companies have extensive use, with an additional 41% indicating that the use of advanced technology was moderate. Here are the details:
The next question explored where member companies were finding the greatest benefit from their investment in advanced technology, with 46% selecting Imaging/Workflow and 30% selecting Electronic Invoicing. Having a supplier portal was picked as the top choice by 8%, with Dynamic Discounting tied for last place.
Here are some of the comments added by members to the first two iPolling questions:
- While workflow has provided the greatest benefit, we are currently implementing a supplier portal for onboarding and maintaining vendor information.
- The greatest benefit from electronic invoicing; however, we have recently deployed workflow into our indirect AP process and we are always looking for more electronic invoicing opportunities.
- Imaging/Workflow; however, we have also received a lot of benefits from OCR and Electronic Invoicing.
- We are currently evaluating Electronic Invoicing, vendor portals, and Dynamic Discounting.
- We implemented Taulia for electronic invoicing, dynamic discounting, and supplier portal. Dynamic discounting provides the most value, but all three have helped us streamline our operation and reduce the cost of operating our AP department.
- We are in the midst of deploying advanced technologies on top of our existing SAP system. In addition to SAP, we have historically leveraged OCR and document imaging. Now we would like to minimize reliance on OCR. We are implementing a supplier portal to enable electronic invoicing, supplier collaboration, payment monitoring, and dynamic discounting. We are making organizational changes to centralize many tactical procurement activities into our Business Service Centers (next to the AP teams). We are onboarding vendors to send invoices (preferably electronically) directly to our BSCs, to leverage our new Invoice Management System to streamline vendor invoice processing and improve workflows. We expect formally organized deployment from the project team to finish soon, at which time we will use a small sustaining team for nine months to continue training and reinforcement of new processes and technologies.
These results are reflected in separate iPollingTM questions that focused on Dynamic Discounting, with almost twice as many companies evaluating and denying the idea (at 20%) than companies who have implemented it (at 12%).
Even though Dynamic Discounting may not be the number one project selected, there are many examples of companies who have reported a large increase in discounts taken, with 40% reporting an increase of up to 50% and an additional 20% of companies indicating an increase in discounts by over 150%.
Comments from members to the iPollingTM questions on Dynamic Discounting include:
- We implemented dynamic discounting using an opt-out approach, and we excluded utilities. It increased the discounts greatly, but we had fallout from vendors who didn’t read the opt-out terms carefully and were upset with the discounts taken.
- In North America, we have AP and Purchasing support for Dynamic Discounting and are working to build support with Treasury.
- We have evaluated both Dynamic Discounting and Supply Chain Financing and both have been denied for the time being.
- We took a look at Dynamic Discounting and decided that for us it wasn’t worth the investment.
- We evaluated and decided to implement Supply Chain Financing instead of Dynamic Discounting, per a decision from our centralized Purchasing group.
To what extent has your company implemented advanced technology beyond your standard ERP systems to enhance the Purchase-to-Pay process? Are you considering implementing a Supplier Portal and Dynamic Discounting?
Who are your peers and how are you collaborating with them?
“PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion. Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content. Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member. Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees.
“iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.
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