UK businesses plan to use dynamic discounting to reduce supplier late payment
As many as three quarters of UK businesses plan to use the practice of Dynamic Discounting – offering suppliers the chance to accept a lower than invoiced price in return for speedier payment – potentially helping to overcome the endemic problem of unfavourable customer terms or late payments.
In research conducted among 100 UK procurement professionals, on behalf of procurement software provider Wax Digital, 27 percent said that their business already used Dynamic Discounting with suppliers. Another 30 percent said they plan to start doing so in the next 12 months and a further 20 percent said they had it as a longer term objective.
It was also recently estimated that UK small and medium sized businesses are owed an average of £12,000 each in late payments, equating to £55 billion countrywide. 23 percent have also considered insolvency as a result of late payment related cash flow issues, while 68 percent wait for 60 days or more for payment. The UK government’s recent enterprise bill is also designed to tackle the imbalance of bargaining power between suppliers and their customers.
But the trend of businesses taking up Dynamic Discounting suggests that suppliers and their customers are taking matters into their own hands. Dynamic Discounting systems work by offering a scaled discount for early payment at the point when invoices are issued to customers.
This has also become possible through the increased use of e-procurement software that automates and massively speeds up the matching and reconciling of supplier invoices on the customer side. Because many businesses can now process invoices in a matter of hours they are in a better position to pay the supplier early, should they choose to do so.
Daniel Ball, business development director, Wax Digital, commented: “Serious late payment and cash flow issues are more likely to destroy a business of any size over and above anything else. It appears that the business community is now taking the bull by the horns to solve this growing problem while suppliers can use a different type of bargaining power.
“Although businesses may get paid slightly less for their products and services they gain the benefit of having the cash in the bank much more quickly.”
The research was commissioned by Wax Digital and conducted by Morar Consulting in early 2016.
Vizibl: The Future of Supplier Relationship Management (SRM)
Even the best procurement team on the planet can only derive so much value from their suppliers by tinkering with spreadsheets or negotiating another half-percent-per-unit from a regular bulk-buy.
The value of relationships count in today’s fast-paced and disrupted business environment, where partnerships, future efficiencies and risk mitigation are just as vital a measure of an organisation’s maturing procurement organisation as overhead reduction.
A recent McKinsey survey into 100 large organisations found that the more cooperative an organisation, the more financially competitive it could become. "Companies with advanced supplier-collaboration capabilities tend to outperform their peers,” it found, but also admitted that this value is not a simple thing to access.
Visibl is a company built from the ground up with the philosophy of ‘delivering mutual value' in mind. Its digital procurement platform is designed to place collaboration at the centre of supplier relationships. Greater transparency for all stakeholders not only simplifies and quantifies contractual obligations, but also provides opportunities to discover and align on common goals and business objectives.
How does Vizibl’s platform work?
Vizibl’s supplier relationship management platform feeds off data. By leveraging data from existing enterprise applications such as ERP, P2P, risk management, or project management systems, all stakeholders can share a central source of truth. The result is greater transparency, visibility and accountability on both sides of a contract. The platform is divided into several focus areas:
- Vizibl Relationships: This system helps organisations move beyond transactional interactions with their suppliers, instead building trust and applying a governance framework that is both scalable and consistent to better support core business objectives.
- Vizibl Workspace: Operating in one virtual workspace removes friction in collaborative endeavours and aligned initiatives. Vizibl Workspace enables partners to drive goals together, whether improved cost-savings, ESG commitments, new product launches or boosting operational efficiency.
- Vizibl Reporting: Measuring results is critical in achieving business objectives, forward planning and risk management. This system helps business leaders leverage actionable data to quantify and drive initiatives, support and mange supplier performance, and understand true ROI.
Key Vizibl customers: Heineken, Vodafone, Astellas
“Gartner lists supplier collaboration as supply chain leaders’ number one focus to solve for agility and resilience”
Speaking to SupplyChainDigital.com earlier this year in June, Mark Perera, CEO and co-founder of Vizibl said: “We work with companies across multiple industries, but regardless of sector, we really see agility and resilience as overarching topic areas in the supply chain. From a resilience perspective, that’s both in terms of operational resilience, but also strategic resilience; we see organisations looking at implementing the desired levels of flexibility and the ability to change with demand, as they look towards the future of their company.”
“Gartner lists supplier collaboration as supply chain leaders’ number one focus to solve for agility and resilience,” he added. “The mindset and process change to switch to a supplier collaboration model will be a challenge for organisations that are falling behind.”