As early payment strategies and technologies continue to evolve, it’s worth understanding developments on the horizon. Following are some trends to watch in the next year or two.
1. More suppliers using early payment.
As newer options involving financing, technology and approaches are launched, supplier organizations will take advantage of early payment more often. However, it is possible that the increase in early payment solution providers may outpace the instances of early payment—at least in the near term. Furthermore, as indicated in Receivable Savvy’s upcoming 2017 Perceptions Study, multiple factors will play a part in how and why suppliers leverage early invoice payment.
2. Suppliers taking advantage of early payment without customer involvement.
There was a time when a supplier was paid early because their customer chose to pay early. Now, suppliers can take advantage of early payment without their customer’s involvement or knowledge. Technology in the form of dynamic discounting and certain forms of factoring simply allow the supplier to take early payment and have their customer pay the invoice to a particular account without direct interaction between the two parties.
3. More customers getting on the early payment bandwagon.
An increasing number of customers will continue getting into the early payment game as a source of revenue. As more customers understand the value of generating incremental “free” revenue, more options for early payment via the customer (whether through their own mechanism or a third-party–created solution) will abound.
4. Customers funding early payment of receivables as an investment strategy.
Even as the Federal Reserve allows interest rates to rise, those rates should remain historically low for quite some time—especially as a lever to keep inflation in check. Many organizations are looking for ways to invest any extra cash they may have on hand. Funding invoice financing initiatives is a good way for those companies to invest with virtually no risk. Look for advances in the ability for large customers to continue funding early payment of invoices.
5. Customers will continue to extend payment terms.
With no incentive to shorten payment terms and every reason in the world to generate revenue from early payment, customer organizations will likely maintain—and possibly extend—longer payment terms for several reasons. First, because they can. Second, it feeds into the opportunity of Supply Chain Financing as a mechanism for generating additional revenue. We don’t see this trend being curtailed in the foreseeable future.
6. Competition between banks and non-bank entities will grow.
Although regulatory requirements continue to evolve—especially as a new administration takes hold—non-bank entities will deal with far fewer regulations than traditional financial institutions when it comes to financing invoices. With this in mind, look for continued innovation by third-party solution providers on the early invoice payment front.
7. More third-party providers will marry e-invoicing/invoice automation and early payment.
Automating invoices and making them electronic easily fits with the value proposition of early payment. The more easily the invoice is submitted to the customer and the faster the approval, the easier it becomes for early payment to occur.
8. Newer technologies will increase early payment options.
New technologies and mobile capabilities will become more prevalent in the next 2 to 4 years. With artificial intelligence and robotic process automation, we will likely see more automated early payment solutions. This may not necessarily change the way a supplier takes advantage of early payment, but it could change the way customers and third-party providers configure their offering and go to market.
9. Governments will be more proactive in encouraging early payment—but not necessarily in the U.S.
The Obama Administration launched the Supplier Pay initiative in 2014. It was meant to affirm the federal government’s Quick Pay initiative while encouraging the private sector to commit to paying suppliers—especially smaller ones—within 15 days. Private companies applauded the initiative, but few made changes to their payment terms. While governments in Europe and elsewhere are taking a more proactive approach to facilitate an environment of early payment, the U.S. will likely lag while concurrently allowing early payment options such as Supply Chain Finance and Dynamic Discounting to flourish.
An early payment solution provider to watch – SAP Ariba
SAP Ariba provides unique multi-funder Supply Chain Finance (SCF) capabilities that let buyers keep cash on hand while keeping their suppliers happy, by extending payment terms to free up working capital while giving suppliers a cost-effective way to accelerate their cash flow. We also help buyers expand early payment discounts to improve their short-term liquidity yield, with no risk, while providing real-time status of approved invoices to help suppliers identify early payment opportunities and act on them at the click of a button. Partnering with our working capital management services team, organizations develop and deploy a customized strategy for managing their dynamic discounting, payment terms, or broader working capital programs.
SAP Ariba is the only provider that combines multiple forms of early payments (SCF, Discounting, PCard), with a market-leading invoice solution and B2B payments on a single, unified platform offering a consistent, easy user experience. And all of this is built upon the Ariba Network, the world’s largest, most global business-to-business trading platform, with over 2 million companies collaborating around more than $1 trillion in commerce on an annual basis to drive a truly integrated source-to-settle process.
Although annual financing costs related to Dynamic Discounting can be high for suppliers to get funded, SAP Ariba provides an efficient and cost-effective way to take advantage of it. Leveraging SAP Ariba’s Supply Chain Financing solution, suppliers can tap into third-party funding instead of using the balance sheet of their buyers. It’s a win-win as buying organizations can generate more cash discounts without negatively affecting their balance sheets, and sellers can get the cash they need to fuel their operations at a much lower cost than traditional vehicles provide.
“The implementation of a dynamic discounting solution can offer the treasury a chance to reevaluate its entire working capital strategy. If used correctly, it can also be used as a way to fund large corporate initiatives.” – Drew Hofler, Senior Director, Financial Supply Chain Solutions, SAP Ariba.
Download the free eBook for a comprehensive overview of early invoice payment
Get a comprehensive overview on early payment and the answers to suppliers’ most frequently asked questions by downloading the free eBook: The Definitive Guide – Early Invoice Payment: The supplier’s guide to understanding early invoice payment options and how to leverage it for improved cash flow.
You can download the free eBook here.