Be proactive to turn those challenges into opportunities!
With a new year comes new challenges and new opportunities for all of us. The key to making sure we turn those challenges into opportunities is being proactive in taking on the challenges presented head on. This is true both in our personal and professional lives.
Professionally, 2023 is shaping up to be a year that starts with many challenges, not the least of which is the economy. The consensus among economists seems to be that a recession is imminent. Depending on what industry you may be part of, any recession may be vary in degrees of severity and length. So the time is now to be proactive and be a force for your organization in helping to ease the pain of any economic downturn. One way to do that is to leverage the business tools available to streamline and drive efficiencies in your organizations financial back-office. In unstable economic environments investments in back-office operations have paid dividends by reducing costs and preserving cash.
Let’s take a look at some of tools available to help you and your organization to make a positive impact on the health of the company:
Dynamic Discounting is a program set up by the buying company that establishes a process by which buyers (customers) and sellers (suppliers) can alter the standard terms of payment “on the fly” in a highly dynamic, flexible, real-time environment. This is a voluntary system where the buyer offers the vendor an early payment discount. This approach is a big shift from the normal supplier discount paradigm where vendors offer the buying company fairly static discount terms on a “take it, or leave it” basis.
Due to the dynamic characteristics of this program, the amount of cash, discount percentages, and invoices discounts offered on can be changed to fit your current cash strategy and to maximize the return on your short term cash investment. For instance, the discount offered can be changed as the cash flow position of the buyer changes. Additionally, the percentage of the discount can decrease as the transaction becomes closer to the normal payment date.
With Dynamic Discounting, the savings to the buying company can be tremendous and the benefits to the vendor encourage a high level of participation. The exact savings to be achieved of course depends on the vendor makeup of your organization and the level of participation by your suppliers. Companies have reported savings of 2% to 3% of EBITA and others have expressed savings of .001% to .003% of spend (or $1 million to $3 million on $1 billion in total spend). While savings data may vary what is obvious is the tremendous potential to your bottom line from a dynamic discounting program.
Automating accounts payable processes using automated workflows and cloud-hosted vendor portals can have a very significant impact on your companies back-office costs:
- Reduce labor costs in accounts payable processing
- Capture earned discounts that are being missed
- Realize significant reductions in vendor servicing costs
- Manage cash and working capital with “best of terms” payments
- Eliminate non-value add tasks through portal based vendor self-service programs
- Capture actionable data to facilitate rapid and accurate processing
Automation in the procurement function can cut costs, improve service levels, and lower supplier related risk by using portal based tools:
- Vendor onboarding can be largely turned from a manual, file based approach to an automated, vendor self-service focused data centric approach.
- Tracking and notifications of renewals on insurance, licensing, and other compliance and certification related issues can help you lower your risk and stay in compliance with governmental and regulatory agencies.
- Diversity collection, tracking and reporting can be automated.
- Automated PO and RFx dispatch and updates reduces labor costs and provides an audit trails of supplier activities.
Utilizing vendor portals and supplier portals to drive non-value ad task back to the vendor can pay significant benefits in streamlining vendor management and financial back-office operations. Vendor portals offer 24 x 7 access between you and your vendors and enable your vendors to perform tasks that alleviate or reduce the burden on your operation:
- Invoice payment and status inquiry
- PO Flip
- Electronic invoice submission
- Payment dispute submission and tracking
These are just a few examples of how you can be proactive in helping your company to be better prepared for economic instability as well as position your operations for future growth without adding resources to manage the increased transaction volumes. operations and add to your bottom-line. Contact ICG for more information or to schedule a free analysis and evaluation of your companies savings potential.