When American Express launched its early payment solution for B2B customers last October, it was not only an effort to strengthen its position in the business-to-business payments space. The firm’s Early Pay tool shed a spotlight on a growing presence in addressing the delayed and late invoice payment problem.
Early payment discounts can be a win-win for both corporate buyer and supplier. Vendors can get paid more quickly, while customers are incentivized by savings on the bill, while neither company has to access external trade financing. American Express, whose solution combines trade finance with an early payment discount offering, isn’t the only one to introduce such a tool.
Accounts payable company Tipalti introduced its own early payment initiative in 2017 that promoted faster vendor payments, while Transcepta added a dynamic discounting solution to its offering a year prior. At the time, early payment discounts were gaining steam as an effective, efficient solution to sluggish supplier payments.
“In 2017, expect to see a significant resurgence in interest in and adoption of dynamic discounting as one of the big shifts in B2B payments,” predicted Inspyrus founder and CEO Nilay Banker in an interview with PYMNTS in 2016.
Just months later, PayStream Advisors’ 2018 AP & Working Capital Report, which Inspyrus sponsored, found that while interest in early payment discount programs is strong among corporate procurement teams, uptick isn’t a guarantee. Researchers found that manual processes to identify and capture those discounts and lengthy payment approval times mean those discounts are often missed.
“For many companies, especially those with more indirect spend and high volumes of lower value invoices, the ability to improve working capital greatly depends on the efficiency of the invoice-to-payment cycle,” said PayStream Advisors Director of Research and Consulting Jimmy LeFever in a statement at the time.
In 2019, it appears not much has changed.
The latest research from Barclaycard again points to a reliance on manual processes and a lack of automated accounts payable and procure-to-pay solutions that results in billions of dollars of missed invoice discount opportunities.
“CFOs have the critical responsibility of driving growth by optimizing their business’s financial performance,” said Barclaycard Commercial Payments Managing Director Marc Pettican in a statement, according to Business Matters reports on Wednesday (March 27). “Our research shows that CFOs that embrace technology not only achieve tangible savings for their organization, they also streamline business processes and paperwork, even when faced with resistance to change.”
That resistance is a tall hurdle, however, and not the only one that companies face when looking to upgrade and enhance B2B payment operations.
Sixteen percent of the U.K. professionals surveyed by Barclaycard said their current accounts payable systems do not support early payment discounts. U.K. businesses currently save more than $19 billion a year on early payment discounts (about $99,521 per business), but could be saving even more: analysts found that a lack of automation and early payment discount functionality means businesses leave $8.84 billion in discounts un-captured.
Resistance to change was cited by 40 percent of professionals as the key barrier to investing in AP software upgrades, despite strong demand for automation, invoice-to-purchase-order-matching, integrated payments and other digital, automated AP technologies. These features are key to capturing early pay discounts, analysts noted.
“The latest innovations in B2B payments, such as integrating payments directly into the procurement journey, can save finance teams significant time and effort, helping them capitalize on early payment discounts more often,” Barclaycard’s Pettican added. “CFOs play an essential role in advocating and piloting these new technologies, helping their organization to stay one step ahead of the competition.”
Barclaycard’s research suggests that even as financial service providers broaden their accounts payable offerings to include early payment discount capture, corporates continue to struggle to actually adopt those tools.