Financial leaders at U.S. companies are delaying payments to suppliers for longer than at any point in the past decade. A new research study estimates that 1,000 of the largest U.S. public companies have a collective $1.1 trillion in supplier payments — payments not yet received from their own customers — and inventories. Researchers found that companies are taking longer to pay their suppliers: 50 percent of invoices are past their due date this year, compared to 48.8 percent in 2017. In the U.S., average supplier payment terms are at 32 days, yet average actual payment length averages are at 55 days.
The largest public enterprises took an average of 56.7 days to pay suppliers last year, the longest timeframe in the last decade, and up from 53.3 days in 2016. Analysts pointed to rising costs of borrowing as one driver behind businesses’ decision to withhold cash from their vendors.
Many experts claim these payment delays are an intentional effort to keep more cash on hand and push the cash flow burden outside of their own organization and onto suppliers, but we’d venture to guess part of the issue is a lack of invoice automation, which makes the AP wheels grind to a halt in many organizations.
As well, we believe that many organizations could be doing business “A Better Way” with a much savvier approach that doesn’t put a payment stranglehold on suppliers and creates new opportunities for early payment discounts and better supplier relations with payment automation.
Leading organizations leveraging dynamic discounting and payment automation are surging ahead of their peers by making early-pay discounts a real and significant source of cash — capturing up to 2 percent of corporate spend directly back to the bottom line and optimizing cash management in real-time. In addition, these same companies are taking advantage of payment automation to further maximize early-pay discounts and netting substantial cost savings and cash back rewards by converting paper checks to electronic forms of payments (i.e. credit card or ACH). As a result, CFOs of these progressive organizations are blazing a trail for the “new normal” in corporate finance where the accounting department is embracing its new strategic role as a profit center.
Dynamic discounting and payment automation allows businesses to dramatically increase early pay discounts by providing a much more responsive “supplier-friendly” model. By giving suppliers the ability to request early-pay discounts when they need cash and the added instant visibility of inflight invoices, enterprises can expedite processing and payments of discounted invoices that results in a quantum leap in supplier participation and increased cashflow. Arming the enterprise with the ability for suppliers to dynamically request early-pay discounts (coupled with payment automation) fundamentally changes the game, providing a win-win for both sides of the procure-to-pay (P2P) value chain – faster payments for suppliers, and maximized discount and other cash-back returns for customers.