finance finds its
BY: NILAY BANKER founder and ceo inspyrus, inc.
igital disruption is making way for new entrants and new models in the banking and financial services arena ala “fintech,” But corporate finance departments are also catching the fintech bug to innovate and streamline financial workflows and the financial supply chain for better, faster outcomes that empower both vendors and suppliers. In the past, Accounting and Finance have been overlooked when it comes to the latest business transformation innovations. Now, they’re finally getting credit where credit is due. One reason for this: Forward-thinking executives are taking advantage of dynamic discounting for fierce financial impact – tapping into a new source of cash that’s changing the finance game. Dynamic discounting allows businesses to dramatically increase early pay discounts by providing a much more
Payment Quarterly | Q1 2017
“supplier-friendly” model. By giving suppliers the ability to request earlypay discounts when they need cash and the added instant visibility of inflight invoices, enterprises can expedite processing of discounted invoices and see a quantum leap in supplier participation and increased cashflow. Arming the enterprise with the ability for suppliers to dynamically request early-pay discounts fundamentally changes the game, providing a win-win for both sides of the procure-to-pay value chain. It delivers the fastest payments for suppliers, while maximizing discount returns for customers – especially when compared to traditional legacy investment alternatives notorious for their slow time-to-value. While dynamic discounting has been in existence for many years, it’s now fast becoming one of the key tools of today’s new breed of forward-thinking CFOs who are discarding the traditional practice of sitting on cash and delaying payments—which has proven to deliver inadequate returns in our fast-moving and demanding economy. Industry analyst firm PayStream Advisors has written extensively on the topic of dynamic discounting and reports adoption of dynamic discounting management solutions has grown at an annual growth rate of 63 percent. Nearly 40 percent of finance pros surveyed said capturing early payment discounts was
“a priority,” and 41 percent said they currently use a dynamic discounting solution or plan to implement one within six months. “Early payments can be lucrative for large buyers since the typical interest rates underlying the discount returns are much higher than the buyer’s cost of capital for other risk-free investments. These relatively short-term, low risk loans are beneficial to both parties,” say PayStream researchers. Organizations leveraging dynamic discounting are surging ahead of their peers by making early-pay discounts a real and significant source of cash -capturing up to 2 percent of corporate spend directly back the bottom line and optimizing cash management in real-time. As a result, CFOs of these organizations are blazing a trail for the “new normal” in corporate finance where the accounting department is now a profit center. According to the Bavelos Group, a consulting firm that advises companies on ways to improve working capital, “leading companies are rapidly finding that early payment discounts are an attractive option for treasury to invest cash at double-digit, risk-free returns. A 2 percent discount for a 20 days cash acceleration is a 36 percent annualized return. And while not all suppliers offer this level of savings, over 50 percent of