bigstockphoto.com

Electronic payments are the way forward, putting the control back in the hands of the supplier and for the benefit of the buyer, argues Robert Kirby, CEO of Spendvision

All businesseS focus on cash flow. It’s the lifeblood of commerce, and without focus the wheels of the business will get stuck in the rut of receivables collection, creating a level of inefficiency which is debilitating.

To a buyer, the focus is on offsetting the final point of settlement to get maximum use of their funds, while a supplier needs to have an accounts receivable team chasing late payments. This often leads to buyers having convoluted accounts payable processes that require managers to approve all invoices to ensure they have visibility of their departmental purchasing. All the while, this is slowing down commerce as departments transfer documents from one part of the company to another for sign off, approval and ultimately payment.

The problem with this is that, while the buyer enjoys the benefit of slowing down the payment, the supplier has to chase in order to track the payment. As a result, both parties lose out. The increased cost of the receivables team is passed from the supplier to the buyer through the cost of the goods. The buyer has therefore built their own inefficiencies by maintaining a process that generates a reaction with the supplier.

There is a better way. Typically, small businesses are beholden to the payment terms of their customers, which are driven by accounting practices and business rules. However, an alternative approach would be to enable the supplier to offer dynamic discounting to encourage faster payment. This way, the invoice is presented online and the buyer can generate their own discount by choosing to push faster payment to the supplier. For instance, pay in two days, receive a ten per cent discount; pay in 30 days, a two per cent discount; pay in 60 days, incur an extra charge.

This puts the control back in the hands of the supplier, enabling them to more effectively manage their cash flow – to the benefit of their customers, the buyers. There is also the option to add a range of commercial payment options that create value for both the buyer and the supplier.

When the buyer wants to place an order they can generate an online requisition for the supplier. This details their requirements and options to settle the invoice. What we are now seeing is the opportunity for financial institutions to start to drive these real-time payment solutions to their customers. Instead of buyers making payments on commercial cards, suppliers can be offered trade finance options that drive cash flow into the business on reasonable terms that include settlement in a matter of days, as opposed to months.

Companies such as Syncada and PrimeRevenue are already enabling the online delivery of trade finance – and this is the next generation of cash flow management.

The automation of this process is the real key to unlocking the opportunity, and there are companies out there that do this today. The delivery of end-to-end supply chain efficiency should be demanded by every business on the planet to deliver best of breed benefits for buyers and suppliers.

While Syncada and others can support this, the benefits of true supply chain efficiency can only be achieved by using one platform to enable all participants, large and small, to extract benefits in the process.

BACK