As growth slows find new areas to add to your bottom line
The financial back-office – Accounts Payable, Accounts Receivable, Procurement, Payroll, etc., are areas that are often viewed as necessary but not strategic. As a result of this view the back-office doesn’t get the executive exposure that may be needed to unlock the value that is hiding there. That may be changing. Let’s examine some areas that may offer substantial financial benefit to the enterprise given some focus and investment:
Dynamic Discounting
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.
Accounts Payable Automation
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 AP processing
- Capture earned discounts
- Significant reductions in vendor servicing costs
- Manage cash and working capital with “best of terms” payments
- Eliminate non-value add tasks through vendor self-service program
Procurement
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.
These are just a few examples of how you can unlock the hidden value in your financial back-office operations and add to your bottom-line. Tools like dynamic discounting, supplier portals, supplier onboarding, AP automation, PO dispatch & update and workflow management can help you achieve these goals if properly deployed. Contact ICG for more information or to schedule an analysis and evaluation of your companies savings potential.