As the White House clearly recognises, it is fundamental to get cash in the hands of America’s smaller companies to encourage and fuel the US economic recovery.
Some of the biggest names in global commerce have pledged their support for SupplierPay, including the likes of Apple, AT&T, Coca-Cola, Ericcson, FedEx, Honda, IBM, Johnson & Johnson, Nissan, Toyota and many others. But don’t expect the cash to start flowing immediately.
There are reasons why larger companies take so long to pay suppliers, the root issues of which must be solved before significant progress can be made in opening the spigot. They principally revolve around three things: opportunity, visibility and capability.
Before an invoice can be paid, it must be received, evaluated and approved. However, the paper invoice processes that still dominate the world of accounts payable (AP) makes this difficult to do in a timely manner. According to the White House, “small business invoices go unpaid for 55-60 days on average, and payments ‘past due’ are increasing.”
To overcome this problem and create the opportunity to pay suppliers earlier, many companies are turning to electronic invoicing 9e-invoicing), through which they can receive invoices in digital format; filter them at the point of submission for common exceptions and errors; and automatically route and approve in less than three days on average. Without the early approval of an invoice, the opportunity to pay suppliers early is a nice idea but one that can never actually be achieved.
Simply creating an opportunity for early payment through an early approved invoice isn’t enough though. To turn an approved payable into a win-win situation, both the buyer and supplier must have full visibility into the opportunity. Business networks provide this visibility by delivering the right information, to the right people, at the right time, so they can make the right decisions and drive the right results.
By providing single portal access to the entire payables process, networks such as SAP’s Ariba give finance and treasury functions within large paying organisations increased visibility into their payables liabilities and allow them to make more informed decisions on when to accelerate cash to suppliers. In turn, their suppliers can see this now approved-to-pay receivable and make known to their customers that they would like to be paid early, in return for a slight discount to accelerate payment. Without such visibility, early payment is merely informational as players lack the capability to act on it.
Business networks enable this capability, providing a common platform for buyers and suppliers to collaborate across the entire source-to-settle process and enabling new capabilities that make the process more efficient.
Processes such as the dynamic discounting outlined above give suppliers the ability to self-nominate for early payment, and their customers the benefit of earning a positive return on the cash they use to make that payment. Additionally, emerging business-to-business (B2B) payment products that combine network intelligence and cloud-based applications to eliminate paper transactions, provide better visibility into cash flow and produce rich remittance information that improves the reconciliation processes for both buyers and sellers.
Supplier Early Payment a Win for All
The primary benefit anticipated by the White House in its new SupplierPay initiative is that small businesses will have “more capital to invest in new opportunities, new equipment, and new hiring.” This isn’t just a goal. It’s already happening for many companies. Take Mediafly for example – a Chicago-based startup that delivers a cloud-based platform and applications for content management and distribution on mobile devices to Fortune 500 companies.
When one of its clients – a major player in the entertainment sector – came to the company and said that it needed to transact business on the Ariba network, Mediafly began sending all its invoices electronically. This proved to be a game-changing move.
“We did a test run with a purchase order and were able to go from quote to settlement in 14 days,” said John Evarts, the company’s chief operating and chief financial officer (COO/CFO). Generally, this cycle took Mediafly anywhere between 30 and 90 days to complete.
Then things got even better. By taking advantage of the dynamic discounting capabilities that this customer offered via the network, Mediafly was able to tap into the cash it needed to hire developers and get to the next set of features in its products, which accelerated revenue and ultimately generated cash.
Supplier access to accelerated cash flow in the form of early payment is critical to sustaining and building a growing economy. Through initiatives such as SupplierPay and innovative platforms like cloud business networks, it can become not just a practice embraced by a select few, but a reality that delivers better commerce and economic growth.
The implementation date of Europe's revised Markets in Financial Instruments Directive, aka MiFID II, is fast approaching. Yet evidence suggests that awareness about the impact of Brexit on MiFID II is, at best, only patchy and there are some alarming misconceptions.
Despite all the automation and improvements that digital banking has the potential to achieve, customers and their needs still form the very core of the banking sector.
Banks might feel justified in victim blaming when fraud occurs, but it does little for customer confidence.
Politicians have united in urging the Reserve Bank of Australia to lend its backing to the digital currency by officially recognising it.