Bringing Efficiency To Corporate Cash Management

As technology continues to evolve, corporate treasurers are faced with increasing options for managing company finances, but no clear rubric to pick between those strategies. Recent reports suggest that some of the key strategies to follow include payment-term standardization, early-payment discounts and a strong eInvoicing platform.

Proper supply-chain management is crucial for any businesses. The issue even has been moved to the top of the U.S. government’s To-Do List. Just earlier this week, the Obama administration announced it was launching a program called SupplierPay. Through the voluntary program, companies commit either to pay small suppliers faster or help them get access to lower-cost capital.

SupplierPay is modeled after the QuickPay initiative that requires federal departments to pay small-business contractors within 15 days, if possible. According the White House, since the program launched three years ago, it has created more than $1 billion in cost savings for small contractors.

Some 26 companies, including Apple and IBM, have signed on to the initiative.

Even so, the U.S. government is not the first to take note that standardized payment terms are not only a good idea, but that they offer something that businesses desire. Supplier-financing specialist Taulia Inc. has been working to make all aspects of supply-chain management and payment options for businesses as easy as possible.

For example, last month, Taulia announced the release of its eInvoicing Rescue Service. Then the company launched its Early Payment Quick Start Initiative, which is designed to help suppliers of large companies get paid faster.

Company co-founder and CEO Bertram Meyer recently spoke with UpStart Business Journal about his organization’s latest initiatives. According to Meyer, Taulia’s purpose is not to create debt for the supplier, but to turn accounts receivables into cash more quickly.

Early Payment Discounts

Another key factor for corporate treasurers to consider is early-payment discounts. What better way to entice companies to pay than to offer a lower price point?

According to a recent Treasury and Risk article, this is an ideal option for firms that want to increase their returns on cash in the current low-interest-rate environment.

“The treasury, procurement, and finance functions can work together to set a hurdle rate, the minimum rate of return the company is willing to accept in exchange for paying early,” the news source explained. “Then they can define the amount of cash the company is willing to use to obtain these discounts and identify which suppliers or supplier groups to include in the program. Although some may be concerned about the negative impact that early-payment discounts may have on days payables outstanding (DPO) and working capital, a treasury team that pays close attention to payment terms can have the best of both worlds.”

Additionally, among businesses with teams of buyers and thousands of suppliers, it’s not uncommon to have more than 100 distinct sets of payment terms. That list usually has oddball terms such as net-7-day or net-15-day with no early-payment option. And if a company can’t get its payment terms under control, its DPO metrics can worsen.

Strong E-Invoicing Platforms

Both of these issues further strengthen the argument that businesses should consider integrating an electronic invoicing platform. Moving to digital gives companies the ability to reduce costs and the amount of hours normally devoted to manually entering data.

According to Treasury and Risk, when firms combine dynamic discounting with electronic invoicing, they can typically start an early-payment discount program before the eInvoicing or dynamic-discount solution is in place.

“This ‘rapid ramp’ approach targets suppliers that either have offered discounts in the past or have never been approached with the idea of early-payment discounting,” the news source said. “For suppliers that agree to participate, the buyer initially assigns a mutually agreed-upon standard payment term and captures the discounts manually.”

Essentially, corporate treasury managers have the necessary tools available to them to create a seamless cash-management process. It’s just a matter of staying educated on the latest options and what will be the best solution for their company.

Payment-term standardization and early-payment discounts have been pushed to the forefront, thanks to companies such as Taulia and initiatives from the nation’s government. E-invoicing is all the rage, and numerous options are out there. So perhaps the real question to corporate treasurers is, what are you waiting for?