Payment behaviour can improve profit margins

CFO in the lead

To implement Dynamic Discounting, prompt approval of invoices is a requirement. "If you can complete the approval process within 48 hours, there are two options: leave the invoice for another 28 days or bring the payment forward and have the invoice discounted. That discount directly benefits the company's bottom line, because the original invoice total was already budgeted."

Many steps precede an invoice. If an invoice matches the purchase order and/or previously agreed supplier contract, it can be approved based on a short process. "Procurement must therefore create the conditions and enable Finance to take advantage of this opportunity. The CFO is like a striker in football who finishes the opportunities. But you are dependent on good passes."

Not an obligation but a choice 

Within a Business Spend Management (BSM) platform, all that can be configured. This digitises the entire process of corporate spending, source-to-pay. "Technology can answer the question of whether an invoice is correct by matching it to the contract or order. Technology can also verify that the service was delivered as agreed."

Users of ISPnext's BSM platform have the Dynamic Discounting module at their disposal since recently, thanks to the acquisition of Flinqer. Tanate emphasises that offering early payments is not an obligation. "It is precisely the element of 'dynamic' that makes it interesting. Finance has real-time insight into whether there are opportunities. As a CFO, you can specify for each invoice whether you want to pay it at a discount within a certain period of time. The supplier may or may not accept that. It is a choice for both parties."

"The CFO is actually the striker who finishes the opportunities. But you are dependent on good passes."

Gustaf Tanate, CEO | ISPnext

Processing VAT 

Tanate continues: "If you've just paid out a large amount, you can deactivate this functionality for a while. Parties can continuously check off what they want within the platform and the system implements it. Of course, this is impossible to do manually when you have thousands of suppliers. But with BSM software, this is very easy."

VAT processing is a separate concern, but the system takes care of that, too. Tanate explains: "If you have an invoice of 100 euros, there is 21 percent VAT on it, so that amounts to 21 euros. If you now agree on a 2 percent payment discount, 100 euros become 98 euros; but the VAT remains 21 euros. The discount comes into a separate account to make it easy for Finance to process it correctly."

Potential in the tail end

In Tanate's view, Dynamic Discounting is especially useful for the large group of suppliers at which a company spends only 20 percent of its expenses. "Eighty percent of the spending goes to the top twenty, the key suppliers. Often, you already have negotiated maximum conditions. The lessor of your building or the car lease company will not be keen on a discount system. The main potential concerns the tail end: the remaining non-key suppliers."

Dynamic Discounting is a logical extension of Business Spend Management. "It is the ultimate result of being completely in control of your spending. It rewards efficiency in the process leading up to an invoice. It allows you to make money by paying invoices on different dates."

This article was produced in collaboration with Executive Finance.