The financial back-office – accounts payable, accounts receivable, procurement, payroll, etc., is often considered necessary but not strategic. As a result of this view, the back office doesn’t get the executive exposure needed to unlock the value hiding there. That may be changing. In this blog post, we’ll examine some back-office tools 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 (vendors) can alter the standard terms of payment “on the fly” in a highly flexible, real-time environment. This is a voluntary system where the buyer offers the vendor an early payment discount. This approach shifts from the normal supplier discount paradigm, where vendors offer the buying company fairly static discount terms.
Due to the dynamic characteristics of this program, the amount of cash, discount percentages, and invoice discounts offered change to fit current strategies. For instance, the discount offered changes 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. The exact savings achieved depend 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 for 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 significant impact on 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 tasks through a vendor self-service program
There are a multitude of different ways to automate accounts payable. This makes it easy to choose a method that works well for your organization, saving you the most time and money possible.
Procurement Automation
Automation in the procurement function can cut costs, improve service levels, and lower supplier-related risk by using portal-based tools:
- Vendor onboarding has largely turned from a manual, file-based approach to an automated, vendor self-service, 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.
- Automated diversity collection, tracking, and reporting.
- Automated PO and RFx dispatch and updates reduce labor costs and provide an audit trail of supplier activities.
Like accounts payable automation, methods of automating procurement in the financial back office vary.
- Dynamic discounting occurs when buyers offer vendors a discount for early payment depending on when the invoice is paid.
- Accounts payable automation reduces labor and helps resources work on more high-value tasks.
- Procurement automation reduces labor costs and provides more visibility into vendor activities.
Learn More
These are just a few back-office tools to help add to your bottom line. Tools like dynamic discounting, vendor portals, vendor 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 company’s savings potential.