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The White House Joins the Cash Flow Chorus – But the Song Remains the Same

August 7, 2014 by Drew Hofler 1

Taking a page from the successful playbook of the private sector, the federal government has jumped on the cash management bandwagon and is encouraging large companies to pay their suppliers earlier.

Dubbed “SupplierPay,” the initiative is a welcome new voice calling for improved access to cash for small and mid-sized enterprises (SMEs). By many accounts, SMEs are driving the majority of the country’s economic growth.

And as the White House clearly recognizes, it is fundamental to get cash in the hands of these companies to encourage and fuel this growth.

Some of the biggest names in global commerce have pledged their support for SupplierPay, including the likes of Apple, AT&T Coca-Cola, Ericcson, FedEx, Honda, IBM, Johnson & Johnson, Nissan, Toyota and many others. But don’t expect the cash to start flowing immediately.

There are reasons larger companies take so long to pay suppliers, the root issues of which must be solved before significant progress can be made in opening the spigot.  And they revolve around three things:  opportunity, visibility, and capability.

Opportunity

Before an invoice can be paid, it must be received, evaluated and approved. And the paper invoice processes that still dominate the world of accounts payable makes this really hard to do in a timely manner. According to the White House, “small business invoices go unpaid for 55-60 days on average and payments “past due” are increasing.”

To overcome this and create the opportunity to pay suppliers earlier, many companies are turning to electronic invoicing through which they can  receive invoices in digital format, filter them at the point of submission for common exceptions and errors, and automatically route and approve in less than three days on average.  Without the early approval of an invoice, the opportunity to pay suppliers early is a nice idea, but one that can never be achieved.

Visibility

Simply creating an opportunity for early payment through an early approved invoice isn’t enough though.. To turn an approved payable into a win-win situation, both the buyer and supplier must have full visibility into the opportunity.  Business networks provide this visibility by delivering the right information to the right people at the right time so they can make the right decisions and drive the right results.

Take SAP’s Ariba Network, for instance. By providing single portal access to the entire payables process, the network gives finance and treasury functions within large paying organizations inc instance. By providing single portal access to the entire payables process, reased visibility into their payables liabilities and allows them to make more informed decisions on when to accelerate cash to suppliers.  In turn, their suppliers can see this now approved-to-pay receivable and make known to their customers that they would like to be paid early, in return for a slight discount to accelerate payment.  Without such visibility, early payment is merely informational, as players lack the capability to act on it.

Capability

Business networks enable this capability, providing a common platform for buyers and suppliers to collaborate across the entire source-to-settle process and enabling new capabilities that make the process more efficient..

Processes such as the Dynamic Discounting outlined above that give suppliers the ability to self-nominate for early payment, and their customers the benefit of earning a positive return on the cash they use to make that payment.  And emerging B2B payment products, such as AribaPay that combine network intelligence and cloud-based applications to eliminate paper transactions, provide better visibility into cash flow and produce rich remittance information that improves reconciliation processes for both buyers and sellers.

Supplier Early Payment a Win for all

The primary benefit anticipated by the White House in their new SupplierPay initiative is that small businesses will  have “more capital to invest in new opportunities, new equipment, and new hiring.” This isn’t just a goal. It’s already happening. Take Mediafly, a Chicago-based startup that delivers a cloud-based platform and applications for content management and distribution on mobile devices to Fortune 500 companies.

When one of its clients – a major entertainment company – came to the company and said that it needed to transact business on the Ariba network, Mediafly began sending all its invoices electronically. And it proved to be a game-changing move.

“We did a test run with a purchase order and were able to go from quote to settlement in 14 days,” recalls John Evarts, the company’s Chief Operating and Chief Financial Officer.  Generally, this cycle took Mediafly anywhere between 30 and 90 days to complete.

Then things got even better. By taking advantage of the dynamic discounting capabilities that this customer offered via the network, Mediafly was able to tap into the cash it needed to hire developers and get to the next set of features in its products, which accelerated revenue and ultimately generated cash.

Supplier access to accelerated cash flow in the form of early payment is critical to sustaining and building a growing economy. And through initiatives like SupplierPay and innovative platforms like business networks, it can become not just a practice embraced by a select few, but a reality that delivers better commerce and economic growth.

Business Networks are a key component of the Networked Economy. See more and join the discussion here.

Photo: Shutterstock

This story originally appeared on SAP Business Trends.

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