In today’s fast-paced business world, companies are constantly seeking ways to improve cash flow and profitability without compromising efficiency. A steady, predictable cash flow helps corporate leaders make strategic decisions about investing in product development, new technology, and broader marketing efforts to reach new customers.
However, many organizations struggle when determining how to improve available cash access. One often overlooked area that can be optimized to bring substantial cash flow improvements is the accounts payable (AP) department. Through AP automation, businesses can settle supplier invoices faster, and solve cash flow issues by helping them take advantage of early payment discounts.
The Value of Early Payment Discounts
An early payment discount is an incentive for customers to pay their invoices early. These payment discount terms are often expressed as a percentage and can range from between 1 and 3 percent. In some cases, the discount may be even higher.
Although this percentage seems modest on a per-invoice basis, the savings over a year can be quite substantial. For example, imagine a supplier offering your company a prompt payment discount expressed as “3/10 net 30 days”. This means the full invoice is due within 30 days, but if you pay within 10 days, you get a 3 percent discount rate.
Under these prompt payment discount terms, an invoice worth $1,000 must be paid in full within 30 days, or you can secure a 3 percent ($30) cash discount if you pay within the 10-day discount period. If you can consistently pay 100 invoices within ten days of each invoice’s receipt, that adds up to $3,000 – and that’s only from one supplier. The savings are even more substantial if you can take advantage of early payment discounts from multiple suppliers, reducing your overall expenses and giving you the working capital you need to grow your business.
Challenges Small Businesses Face to Meet Early Payment Deadlines
Early payment discounts are desirable to business owners as they help strengthen the company’s cash position. However, taking advantage of these discounts can be challenging due to the following factors:
Manual payment processes
Manual accounting invoice processing can be inefficient, time-consuming, and error-prone, resulting in payments missing the early discount period.
Cash flow irregularities
Many businesses can’t reliably predict cash flow, affecting their ability to budget for early payments to their suppliers.
Lack of timely financial reporting and oversight
In many cases, AP departments lack real-time visibility into their cash position to know how much money can be allocated to early payments.
AP automation helps companies capture early payment discounts by streamlining workflows and giving complete real-time visibility into their cash position.
The Role of AP Automation in Early Payment Discounts
AP automation helps tackle the above challenges by offering these critical functions:
Speedier invoice processing
AP automation makes paper invoice processing a thing of the past. Automated systems allow invoices to be scanned, digitized, and processed automatically, extracting and storing data such as invoice numbers, due dates, and payment terms. Digitized invoices are sent for review and approval with just a few keystrokes, promoting faster processing and early payment to suppliers.
Real-time financial data and insights
Unprecedented real-time visibility into the invoice lifecycle is a significant advantage of AP automation technology. Finance teams can track the status of invoices from receipt through to payment, which empowers your AP department to manage payment schedules and capitalize on early payment discounts proactively.
Automated reminders for upcoming payment deadlines
Tracking early payment deadlines is easy with AP automation technology. The system can be programmed to send your accounting team automated reminders when payments are due, so they can proactively make early payments every time.
Benefits of AP Automation Beyond Early Payment Discounts
Adopting AP automation also brings you additional benefits, such as:
Shorter payment cycles
AP automation cuts the invoice payment time from weeks or months to mere days, improving efficiency, eliminating bottlenecks, and helping you pay bills on time.
Reduction in manual errors
Digital scanning technology accurately captures original invoice data, reducing the risk of human error that can lead to late payments and penalties.
Time savings, leading to cost reductions
Your cost per invoice decreases as there is a significant drop in manual processing, saving time and money
Enhanced vendor and supplier relationships due to timely payments
Another benefit of making early payments is that you improve your supplier relationships, which can lead to more favourable credit terms down the road.
Steps to Implementing AP Automation
Getting started with AP automation is as simple as following three easy steps:
- Evaluate the right AP automation tool
Shop around for technology that suits your needs today and is scalable enough to grow with your business.
- Transition from manual to automated processes
Your service provider should be able to implement your automated solution with minimal impact on your daily operations.
- Train staff and stakeholders
In many cases, training on your new AP automation tool can be completed in less than one day, so you can start saving money faster.
Accounts payable automation offers a comprehensive solution to the challenges posed by traditional manual processes, enabling organizations to capture early payment discounts consistently.
Harnessing the power of AP automation technology helps you optimize cash flow, pay invoices on time or early, strengthen relationships, and pave the way for sustained growth in today’s dynamic business landscape.
Evaluate Your Accounts Payable Journey: Transition to AP Automation with ACI’s Expertise Today!
For over 40 years, Ash Conversions International (ACI) has helped small, medium, and large companies adopt efficient, cost-effective, tech-based solutions that transform how they run their daily operations, including their accounting processes.
Our automation solutions provide complete AP invoice visibility, easy approval routing, one centralized cloud-based location for invoice processing and retrieval, robust workflow reporting, and many more features to ensure sustainable cost savings.For more information on how your organization can benefit by automating the accounts payable process, call us at 800-719-9621 or click the button below.
