Get More Cash Discounts by Improving Purchase to Pay Process | QPR

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28 April 2017

Get More Cash Discounts by Improving Purchase to Pay Process

Purchase to Pay (P2P) is a high transaction volume process that can easily be improved by using process mining techniques. Process mining brings visibility to the whole end-to-end process and identifies root causes for problems in P2P process.

Cash Discount is an incentive for the buyer to get an additional price reduction by paying an invoice before the due date. A typical cash discount could be “2%/10 net 30” which offers buyer a 2% discount for invoice due in 30 days if invoice is paid within first 10 days. Another cash discount example could be “3%/15 net 45 ROG” which means an invoice having a due date in 45 days after the Receipt of Goods (ROG) and offering 3% cash discount if paid within 15 days of the invoice date.

How to save 2 million Euros?

Simple math shows how much money your organization can save by utilizing cash discounts better: If you have 500 million EUR annual purchases with payment terms of “2%/10 net 30” and your current Cash Discount Utilization rate for these purchases is 30%, then increasing the Cash Discount Utilization rate to 50% will give you immediate savings of 2 million EUR calculated as 500 million EUR x 2% x (50%-30%). 

In order to utilize the potential cash discounts in large organizations, the Purchase to Pay as well as the Account Payable processes need to work smoothly. Some key challenges we have seen in our customer projects include:

  1. Incoming Invoice is not connected to a Purchase Order.

    It can be very time consuming and expensive to process invoices which do not correspond to a previously created Purchase Order. There are many causes for this issue, including for example, problematic vendors, individual purchase departments, missing information in invoices, consolidation of invoices and purchase orders.

  2. Automated 3-way match fails.

    Here the problem is typically related to either price, volume, or amount information in Purchase Order, unclear data from Receipt of Goods documents or the challenges in vendor created invoices.

  3. Cash Discounts from infrequent vendors are lost due to slow invoice processing.

    Sometimes a nice cash discount is offered for high value one-time invoices. Large discounts from these infrequent vendors are often lost due to inefficient and slow manual processing involving Purchasing, Accounts Payable and Business Operations.

Process mining and analysis provides visibility to both Purchase to Pay and Accounts Payable processes. It produces exact information of potential cash discounts and actual cash discounts received for each invoice and purchase order separately. Based on this information, it is possible to easily find the business segments and areas where the biggest improvement potential exists, including dimensions like vendor, purchasing organization, item, plant, currency, Purchase Order department, Purchase Requisition properties, PO Types, company code, and invoice date.



To learn more about Cash Discounts, check out our webinar below.

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Teemu Lehto's picture
Teemu Lehto
Vice President, Process Mining