When you have a chance to save money, you take it, right?
How about when a supplier offers you a discount for paying their invoice promptly? Many healthcare organizations forgo these discounts, often for one of two reasons. Some believe they simply don’t have the financial strength and cash flow needed to meet shorter – often just 10- or 15-day – invoice terms. Other providers have the cash available, but lack a payment process that can identify, flag and process these invoices within the timeframe needed to qualify for the discount.
But by making early payment discounts part of your overall payment strategy, you can add up to two percent of your spending back to your bottom line.1 Not only that, but a track record of early payments can also help boost your organization’s credit worthiness, which could lead to better credit terms in the future. What’s not to love?
Fortunately, it’s possible to seize payment discounts.
Let’s consider the two biggest obstacles:
“I don’t have enough cash on hand.”
A low checking account balance doesn’t necessarily lock you out of an early pay discount. In some cases, it may make good financial sense to draw from your bank line of credit to meet an early payment deadline. Crunch the numbers to figure out whether you’ll pay less overall.
Compare the cost of the interest you’ll pay on the bank credit to the savings you’ll earn by paying the invoice early. Your banker can help you calculate the difference. Depending on interest and early payment discount rates, you may find it still pays to pay early.
“Tracking invoices is hard enough, let alone discounted ones.”
Your accounts payable system may not be set up to handle quick turnarounds on invoices, and that may be keeping you from taking advantage of early payment discounts. But if you change it so you can, it might make all the difference.
This may be easier said than done, of course. It will likely require you to automate some processes and add electronic payments to your mix of payment methods. The availability of intuitive, easy-to-implement and use solutions is growing. Working with payment strategists, your accounts payable team should be able to identify technology solutions that make it possible to identify and automate discount opportunities while helping you improve cash management.
Streamlining and automating your accounts payable system, in fact, offers many benefits beyond early payment discounts. Faster payment initiatives and electronic payment methods open the door to revenue sharing, can help support fraud detection and prevention, and make payment timing easier to predict. If you haven’t considered these new banking and payment tools lately, they are worth a fresh look.
Cash management technology is changing, making it easier for companies to improve their processes and seize early payment discounts. If your company isn’t taking advantage of these discounts, now is a good time to make them part of your payment strategy.
- J. Wilkinson, “2/10 net 30,” The Strategic CFO, July 22, 2013.