Tuesday, October 06, 2009
Session: Automating Payables to Optimize Working Capital

Live blogging the Association of Finance Professionals in SF, CA

Today David Peraino, Managing Director and Global Product Executive for Order-to-Pay presented JP Morgan’s electronic invoice presentment and processing (EIPP) platform. In 2007, JP Morgan purchased Xign, and this automated business settlement system became the basis for their offering. Since the Xign acquisition, significant enhancements have been made.

The major new offerings in this space is called “dynamic discounting” where buyers and sellers who are both electronically connected to the system make use of prorated sliding scale discount terms.

For example, many vendors offer a 2% discount for payment in 10 days. Did you realize that the 2% saved for paying in 10 days is equivalent to an Annual Percentage Rate (APR) of 36%? It gets better: under dynamic discounting, buyers who can take a 3% discount for payment in 5 days and a 4% discount for payment in 3 days, earn APRs of 43% and 54%, respectively.

What’s the incentive for vendors to connect to the EIPP platform? If you want to sell to Verizon Wireless and their 87 million customers, it’s mandatory. If you choose to connect to the platform but not offer dynamic discounting, your invoices will be paid in 60 days. Enough said.

With buyers and sellers electronically connected to the platform, invoicing and payment is accurate and timely. How many times have you offered a discount for prompt payment and had the buyer take the discount but not pay during the discount period? These new systems make those old tricks impossible.

Because the bank hosts the network, small- to mid-market firms may avail themselves of the technology without big upfront expenditures.

PayStream Advisors reports that “increased electronic invoicing emerged as the most popular option with a majority of companies stating that this was the top priority on their 2009 automation plan.”

The pressure to optimize working capital is constantly increasing. 21st century CFOs must look at every opportunity to improve operational efficiency.

That’s Practical Turnaround Thinking.