Pay suppliers within terms, without waiting for receipt of goods yet with no risk!!!
Save money by implementing PO Prompt Payment
If you are like the majority of companies receiving goods from suppliers, you are unable to leverage significant supplier negotiated discounts because of your inability to pay suppliers within negotiated terms. We’ve seen with clients that roughly 20% of invoices are paid outside of these terms which results in penalties such as reduction of terms, reduction of CR available and the complete loss of available discounts.
What is the reason for paying suppliers outside the terms? Several issues could play a part:
- Data quality – incorrect data resulting in time to research and rectify,
- Timing – the invoice arrives late or at the wrong time for the payment process to pick it up,
- or even a broken or slow process for payment.
If we assume that the data is accurate (or that it can be corrected within the terms window) and that the time frame of which the invoice was sent is correct, then we have to be able to address the payment process so that suppliers can be paid within terms.
Typically companies will wait for the Goods Receipt to be correctly entered into the system before releasing the invoice for payment. An issue lies however, when the shipment is coming from overseas or if the Goods Receipt fails for some reason and your organization ends up experiencing delays and slipping past the time period. In some cases Suppliers will even choose to ship your product via aircraft rather than ocean, just so that they can be paid on time. This is not cost effective and in the end the customer experiences that cost increase.
How do you stop that behavior and address the issue?
Solution to the problem
What if we could guarantee that the supplier has shipped the product and that the carrier has taken ownership of the product and that this detail matches the invoice sent by the supplier? If this “3-way match” is provided systematically, it is sufficient proof to allow for the supplier invoice to be released for payment well within the terms period.
SAP® has the capabilities to engage in a “Supplier Prompt Payment” method to pay PO invoices. Simply put: You are able to separate the tie between your payments and your goods receipts. This allows you to meet your negotiated terms and also incentivizes your suppliers to use a more cost effective shipping method – thus saving you more money.
- Improved payments within terms leading to increased discounts claimed
- Improved CR terms with suppliers
- Improved shipment methods for international shipments
- Improved supplier relationships with improved prompt payments
- Visibility to supplier performance
A recent customer was not able to leverage more than 20% of supplier discounts totaling more than $50 million in savings. Q Data USA implemented this PO Prompt Payment solution, and in the year following the implementation, they were able to make payments within terms that qualified them for an increase in discounts of more than $10 million. Late payments were also significantly reduced which positively impacted their CR rating and allowed the suppliers to revert back to using more traditional, cost effective shipment methods.