How is the current climate impacting financial processes at enterprise organizations?
Every spring, the experts at Direct Commerce take a look at the prevailing trends in source-to-pay automation. While this year is no different, it certainly is a different year! With the economy having been partially shut down for two months and just starting to reopen, here’s what we see happening in our industry.
Trend #1: Digitization is accelerating at a faster rate.
Digitization has been a priority for enterprise financial professionals in recent years, but only about a third of firms actually had a proper strategy in place at the start of 2020. Many companies that started on the road to digitization have been burned by partial solutions, such as email and scanning, that don’t deliver what true process automation can.
We believe that the shock of the global shutdown, with employees forced to work from home if they can work at all, is accelerating the digitization process and steering enterprise organizations to the source-to-pay (S2P) automation solutions that really get results, such as supplier portals and e-invoicing.
The need for a secure, centralized repository of electronically generated invoice data, which increases productivity and profitability in the best of conditions, is more important than ever today.
Don’t be surprised if, by the start of 2021, more than two thirds of enterprises will be using S2P automation tools in their Accounts Payable departments, or at least have a strategy for implementation in place.
Trend #2: Cash preservation is becoming a bigger priority
Enterprise organizations short on cash will be motivated to extract more value out of their supply chains and reduce leakage, by monitoring inventory more effectively, extending payment terms, and implementing a supply chain financing (SCF) program.
With SCF, buyers extend their payment terms with suppliers and use a third-party financial institution to negotiate early payment discounts from suppliers and pay those invoices. The buyer pays the full amount of the invoices upon maturity, effectively holding onto cash for an extra 15, 30, 60, or more days.
Trend #3: Suppliers may need help from buyers
SCF is also a win for suppliers that want money coming in more quickly in return for a small discount. It’s especially attractive for suppliers with lower credit ratings, because suppliers are able to get the financing at the buyer’s cost of capital, which could be considerably less.
Buyers that don’t have a cash problem can help their suppliers—and make a significant return for themselves—with an early payment program called Dynamic Discounting. It’s similar to SCF, but because the buyer uses its own cash to pay invoices early in return for a discount, the buyer actually spends less. Companies that use dynamic discounting can expect to save about $5 million for every $1 billion of spend, while also freeing up an additional $250 million in cash.
How is the current climate impacting financial processes at your business? Do these trends ring true for what you’re experiencing? Please let us know or contact us if you want to take advantage of AP Automation, Early Payment Programs, or other S2P automation solutions.