I recall attending an ISM conference almost 20 years ago where 18 P-Card providers were exhibiting. P-Cards held great promise at that time as a vehicle to streamline the Procure-to-Pay process.

Fast forward 20 years…many companies now use P-Cards as a tool to buy (only) low dollar items. In total, a very small percentage of overall spend is being managed through P-Cards. The adoption rate has been somewhat disappointing.

About one year ago, some P-Card offerings were re-purposed and re-launched as Virtual Accounts Payable Cards. These Virtual Cards allow companies to pay any invoice and replace their paper checks. This allows companies to manage a much larger percentage of annual spend. Companies such as U.S. Bank and COMDATA are two such financial service companies offering Virtual Cards for Accounts Payable.

The ability for a supplier to get paid within 48 hours is very attractive in a down economy. Many suppliers are happy to offer a 2% - 3% “discount” in exchange for prompt payment in this economic climate.

Since improved cash flow is the name of the game during a recession, we are seeing renewed interest in P-Cards and Virtual Cards. This requires Electronic Invoicing, Invoicing Portals, and other tools in order to pay invoices promptly. This will greatly increase the adoption rate of P-Cards and Virtual Cards.

 I’ve been through six recessions in my career, and I have learned two things. First, recessions will end (usually within 18 months). And second, a recession is a great time to implement a new system.

The obvious reasons…

•  This is a great way to reduce expenditures through improved “Demand Management” and therefore increase profitability. This is always important, but becomes more critical in a down economy. 
• It’s a great time to reduce costs through improved sourcing (you have more leverage than in good times).
• You have the time because the pace has slowed. You want to be prepared when business ramps up.

 The not-so-obvious reasons…

• Fraud is more prevalent in down times. Now is the time to beef-up internal controls and drive contract compliance.
• With low interest rates, Early Payment Discount Management has even a greater ROI than normal (36%+ per year). Suppliers are much more willing to offer up early pay discounts to improve their cash flow.
• Licensing or subscribing to a third-party system/package is more cost-effective during these times. Vendors are more likely to negotiate price/terms. Several self-funding options may also be available to reduce or eliminate the investment required.

In summary, now is a great time to implement a new system. In the coming weeks, we will discuss how to make it happen.

Challenges of Early Payment Discount Management
We are working with many mid-to-large sized companies that are justifying their P2P projects based solely on the ROI potential of an Early Payment Discount Program.

The analysts and gurus have recently been talking-up the compelling payback potential of Early Payment Programs.

The potential ROI is 36% per year…a great use of working capital.

So why are so few companies actually doing it? Don’t all Treasurers and CFOs want to capitalize on this trend?

People are thinking if they simply implement Opt-In Early Payment Discount Management software they can start receiving 2-3% discounts on Day 1.

It doesn’t happen that way.

How Early Payment Discount Management Works
In order to take advantage of Early Payment Discounts, you have to be able to ACTUALLY PAY invoices (consistently) in less than 15 days. Many companies today can’t pay invoices consistently in less than 45 days.

And so we need to first streamline the process of receiving and approving and paying invoices. In fact, to maximize the ROI, companies need to be able to pay not only early,
but on a specified day.

Of course all of this assumes invoices are complete and accurate!

Sound like a lot of work? Some people think scanning invoices is the answer. Some people think printing checks more frequently is the answer. Some people think you should just take the discount even if you (still) pay late!

None of these achieve the ultimate objective.

Success With Early Payment Discount Management
To succeed, we recommend to our clients they first have their major suppliers send invoices electronically. For P.O. invoices, they can then be matched automatically without human involvement and be ready for payment on Day 1. That means the invoices are eligible for
Early Payment Discounts.

PayStream Advisors recently profiled the PNet ePayables suite of products. Here’s what they said…

“PurchasingNet offers the Opt-In Early Payment Discount Management™ (EPDM) functionality as part of the PNet ePayables suite, built on the company’s mantra that early payment discounts cannot be achieved without streamlining the purchase order and invoice management processes. Hence the tight integration between electronic PO delivery, invoicing, matching, approval workflow, and discount management capabilities offered by PNet ePayables.”

Early Payment Discounts are not a myth. They can and will be a reality once the Procure-to-Pay process is streamlined.

It’s something like running and finishing a Marathon…you have to get in shape and train first, and then enter the race. Those that enter without the proper training and preparation always come up short.

- Tim McEneny