5 Ways E-Invoicing Improves Supply Chain Financing

Wednesday, March 26, 2014

In an effort to improve supply chain efficiency, companies are increasingly turning to supply chain financing as a catalyst for cost savings, cash flow improvements and working capital optimization. There are several reasons why supply chain financing is gaining popularity among companies both large and small. Industry research compiled by the Aberdeen Group suggests that demand volatility and the risk of trading partner default are the two biggest drivers of interest in supply chain financing.

Supply Chain Financing: Mutually Beneficial Scenario for Buyers and Suppliers

Supply chain financing offers benefits for both buyers and sellers of business goods. Even with a brighter economic outlook, many suppliers struggle to obtain sources of capital and funding for their businesses. Supply chain finance solves that problem by giving suppliers fast access to affordable capital.

In a financing scenario, sellers can obtain cash for accounts receivable (AR) from a third-party intermediary, such as a bank, invoice investor or other financial institution. The third-party financier holds on to the invoice and collects the full payment from the buyer when the invoice matures. This gives suppliers more available cash flow, mitigates the risk of buyer default and positively impacts the value of a supplier’s AR.

For buyers, financing allows them to extend their payment terms, lower the costs of goods and improve their Days Payable Outstanding (DPO), while capturing valuable discounts from suppliers for early payments. Normally, buyers can receive a 2 percent discount by paying an invoice within a 10-day window. Over the course of a year, buyers can rack up an annual return rate of 36 percent just by paying invoices early. This is well over the return buyers can expect from a money market investment or by paying down debt.

Five Reasons Why E-Invoicing Complements Supply Chain Financing

 By leveraging technology and e-invoicing, companies can facilitate supply chain financing more effectively and achieve several meaningful business results that further improve organizational financial performance. These include:

  1. Increased Discount Capture: Although most AP professionals agree that discount capture is an important priority for their organization, only 27 percent of organizations can capture discounts consistently, according to recent research we did in partnership with PayStream Advisors. E-invoicing shortens invoice payment cycles from 23 days down to just five, ensuring companies meet early deadlines for discounts.
  2. Improves Cash Flow Management: E-invoicing improves cash flow management for both buyers and suppliers. Buyers can use supply chain financing to secure longer payment cycles, while suppliers gain access to cash immediately, both of which improve cash flow. E-invoicing also reduces labor costs associated with manual data entry and routing of paper-based invoices.
  3. Workflow Efficiency Improvements: With real-time invoice status tracking, easy-to-use collaboration tools, document share and invoice negotiation capabilities via a single technology portal, buyers and sellers can streamline processes and increase efficiency by using e-invoicing. E-invoicing also reduces errors from manual data entry and instances of lost or damaged invoices.
  4. Stronger Buyer-Supplier Relationships: E-invoicing strengthens buyer-supplier relationships by enabling faster and more predictable invoice payments. This can translate into more favorable trading terms for buyers and improved supplier support down the road.
  5. Gain Visibility, Reporting Tools and Analytics: With e-invoicing, buyers and suppliers have access to interactive reporting tools, customized analysis and financial trends data to help facilitate better decision making.

Our PAYBOX® platform helps organizations of all sizes use electronic invoicing and ePayments technology to streamline financial operations, increase profitability and transform AP and AR processes. To learn more about our solutions, give us a call at (613) 873-2909 for a personalized consultation.