Your procurement team have managed to negotiate terms with some of your suppliers which include a settlement discount element if invoicies are paid within an agreed timeframe. The question is how do you make sure you make the most of it.
In order to make the most of settlement discount offers, you need to have systems in place so that invoices are given appropriate priority and your team are trained on how to handle them and ensure that they are paid within the correct time frame.
Here are some steps to take in order to consistantly pay to settlement terms.
Maintain a list of all suppliers who offer settlement discounts
An accounts payable department can receive hundreds to thousands of invoices a month depending on your companies size, so it helps to know which suppliers you will be looking out for. If you are lucky, your accounts payable software will be able to export a list of suppliers but if not, set up a spreadsheet which is local to your accounts payable team and ask them to add to the list the ones they currently know of and to add any new ones as they are discovered.
Enter applicable invoices onto the system once they are received
As invoices are recevied daily by post and email, ask your team to set them aside and enter them the same day if possible, assuming there are no tasks with a higher urgency that require attention first.
Escalate and resolve any queries as soon as possible
If there are any discrepancies on the invoice preventing it from being paid, this should be escalated as soon as possible, either with the supplier directly or with the buyer / requester who manages the relationship with the supplier, depending on your process. Ideally if the invoice needs to be reissued, the original should be cancelled with a credit note and the replacement should be dated with a new issue date.
Reconcile supplier statements
When looking to take advantage of settlement discounts it is necessary to take a proactive approach. Arrange for suppliers to send statements periodically and chase up suppliers to provide copies of any missing invoices.
Pay invoices within the settlement period
Settlement discount timeframes can vary. It could be that the settlement can be taken if paid within the 30 day terms or it could be that to get the discount a more strict 14 days terms is required. Ideally you will have regular payment runs and have your system automatically pay to settlement terms ensuring that payment also hits the suppliers bank accounts within the settlement period too.
Request invoices and statements are sent by email
Having invoices sent by email has many advantages over those sent by post, including quicker delivery, no invoices lost in post and the ability to find misplaced invoices from within your email archives. Many suppliers will be happy to take this action if their accounting system allows, as it helps automate their work and reduce postage expenses.
Ensure that settlement discounts are achieveable
If despite your best efforts you cannot meet settlement discount timelines, you should inspect your processes and see what is holding prompt payment up and address any bottlenecks your teams processes. If the delays sit with the supplier, such as they use a freight company to ship the goods abroad and the goods don’t arrive until after the settlement discount window has passed, this should be highlighted to the supplier and settlement terms should be renegotiated.
By being proactive and working in a systemised way it is possible to greatly increase the amount of settlement discounts that can be taken which is guaranteed to increase your companies bottom line.