Written by By Drew Hofler Senior Manager of Financial Solutions for Ariba.
During tight times, the tendency for most organisations is to shore up costs and adopt a myopic approach to conducting business. This is not the way to prepare for, or pull through, a market slowdown. Companies bold enough to embrace such a creative approach can successfully navigate today’s rough waters and sail smoothly once the economic storm passes.
Embrace innovations and work together
As the perception of recession looms large over today’s economy, it is more important than ever for buyers and suppliers to work more closely together, share the economic burden of the times, and embrace innovative ways to ensure their mutual health. The supply base offers short-term investments with higher returns that are effectively risk free.
Hoarded cash is risky cash
Cash that’s hoarded in traditional, low-return liquidity vehicles is cash that’s not just losing value – it’s potentially creating risk:
- As said above the tendency for most organisations is to shore up costs and adopt a myopic approach to conducting business
- As the gap between low-quality and high-quality borrowers grows, more suppliers will experience cash flow problems.
- And many will ultimately fail, creating disruptions in the supply chain that can negatively impact operations.
Buyers with cash on hand can head off such problems by investing their stash in their supply chain. So, companies looking to maximize their returns on otherwise idle cash would do better by thinking in terms of the value that cash can create. And so we introduce: Dynamic Discounting
Dynamic Discounting and how it works
Every company has an interconnected web of buyers and suppliers. Smart companies can use the transactions they make on a daily basis with their suppliers to their advantage: Dynamic Discounting
Here’s how Dynamic Discounting works:
- In return for a discount, you can accelerate payments for approved invoices to key suppliers.
- You earn an immediate return on your cash.
- And your trading partners can use that cash to fund their daily business needs and ensure they can meet your ongoing demands.
Getting buyers to agree to pay early and sellers to offer a discount might seem like an impossible task. But new technologies actually make it quite simple. Delivered in the cloud, such solutions provide buyers and sellers with all of the tools necessary to fully automate the process of offering, negotiating, and agreeing on early payment terms. Buyers can capture discounts at any point between invoice approval and the net due date and automatically present offers to lock them in. Suppliers can automatically accept offers or control the acceleration of payment on an ad-hoc basis according to their needs.
Dynamic Discounting at Ariba
Dynamic discounting is gaining popularity. On the Ariba Network, an online supply network used by more than 500,000 buyers and sellers, over $4.5 million in discounts have been captured in the past year. Buyers receiving these discounts saw average annual returns of anywhere between 10 and 36 percent – far greater than the returns available through traditional liquidity investments.
“We can get our invoices paid as quickly as four days – it’s like gold,” says Joy Stoelting, Studio Manager for Big-Giant, a Portland-based design firm that participates in an early discount
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