Four pillars of a successful early payment program

Craig Goodman & Mary McIntyre

Early payment (EP) programs are a way of offering your suppliers access to liquidity, thereby making your supply chain more resilient and strengthening your relationships. Depending on your chosen route, you can use dynamic discounting to deploy your own surplus cash at an attractive rate of return. Or, you can leverage supply chain finance to tap into third-party funding, while using the program to improve your own working capital position. What’s more, if you use Taulia’s platform, you can seamlessly combine the two.

Whatever your chosen approach, EP programs can bring numerous benefits for you and your suppliers. In practice, some programs are more successful than others – but after helping clients deliver successful programs for nearly 10 years, we’ve learned a few things about getting the most out of early payments.

To deliver the results you’re looking for, we believe an EP program should be built on the following four pillars:

  1. Buyer commitment

To maximize the success of your EP program, you first need a strong partnership with your program provider – and you also need to build strong commitment to the project internally. This means having executive level sponsorship and buy-in, as well as cross-functional alignment between the key areas of procurement, treasury, accounts payable and IT. Other essential components include:

  • Cross-functional incentives and accountability.
  • Cross-functional agreement about the program’s value proposition.
  • Funding (‘cash’) commitment or an agreement for third-party funding.
  • Commitment to rate flexibility, exposing more spend and supplier engagement (see below).

The better your supplier-facing personnel understand the value of the solution, the more likely it is your implementation will be a success. But this may not happen automatically, so bear in mind that your business stakeholders may need to provide some internal cheerleading after the contract has been signed.

  1. Rate flexibility

Achieving rate flexibility is another key component of success, as the primary goal of the program is to make it attractive and resourceful for your supplier base. Through our proprietary spend analysis process, we provide supplier segmentation and APR guidance for suppliers on net terms. We do this by reviewing our network intelligence, proprietary supplier database, and supplemental financial data.

For dynamic discounting, we work closely with your teams to agree to a rate profile for your program by creating a blended APR target and determining a floor and ceiling. Our outreach teams then work with your suppliers to reach agreements that will help you achieve that blended APR target.

We also offer third-party funding through supply chain finance as an alternative to a buyer-funded program. For this type of program, we direct the payment rate with a continued emphasis on making pricing as attractive as possible for suppliers.

  1. Exposing more spend

If you want your suppliers to accelerate their payments, it’s important to get your invoices flowing through our network. This can be achieved in two ways:

  • Pushing more spend to our network. The faster your program is implemented and rolled out, the more spend you will have available. You can also boost your spend as you expand the program to include new regions, markets and business units. As well as maximizing the value of your program, initializing all your spend on our platform will enable us to provide analytic guidance for all your suppliers.
  • Expanding the acceleration window. The longer the window between invoice approval and the invoice due date, the greater the opportunity for suppliers to access early payment. This can be achieved by:

    • Shortening your invoice approval time via our invoicing platform or by improving business processes. You can also change the baseline date from the invoice date to the receipt date.
    • Extending your net payment due dates in line with your working capital objectives. This will likely involve partnering with procurement and leveraging the vendor contract process. We can help guide you through this process.
    • Increasing the frequency of payments to five days a week, while also avoiding blackout periods.
    • Increasing your use of electronic payment methods via projects such as check to ACH conversion.
  1. Supplier engagement

Offering your early payment program to all your suppliers is also crucial when it comes to maximizing the program’s success. This can be achieved using both active and reactive supplier engagement.

Active supplier engagement means engaging your targeted suppliers, ideally within three months of launching a program. You can also introduce your suppliers to the program using techniques such as customized email marketing.

Taulia can support you in this process, from helping you pinpoint the greatest opportunities within your supply chain to offering personalized outreach to suppliers on your behalf.

Reactive supplier engagement can be deployed more widely to offer early payment to all your eligible suppliers. Our platform offers many benefits – including invoicing, messaging, supplier information management and 24/7 access to PO, invoice and payment status – which can help suppliers save time and operate more efficiently.

Modifying your existing business processes can also be an effective way of communicating the benefits of your program to your suppliers. Messaging can be included in everything from RFPs and new vendor packets to contracts and onboarding processes. You can also include messaging within your PO creation and payment processes, and by adding it to your accounts payable talking points.

Next steps

Our experience has shown that these four pillars are all critical in building a successful early payment program – so how does your program compare? If you’re looking for constructive feedback on your program, reach out to your Business Consultant or contact us to learn more about partnering with Taulia.