We Know Where the Material is But….. Where’s the Payment?

November 15, 2017 David Cahn

At some point, many of us provided a product or service to a customer, friend or neighbor while wondering how and when we would be paid. For me it goes back to when I was twelve delivering newspapers on Long Island in New York.  I acknowledge upfront, I am using this analogy at the risk of giving away my age.

I had a neighbor that got the paper seven days a week for $2.50.  The challenge was, I never knew what week I would be paid. When I came around, Mrs. Arnold was either conveniently absent or didn’t have the $2.50 in her purse. I had another neighbor that would make me flip a coin, double or nothing, in an attempt to settle back week’s payments. As you can imagine, I learned negotiation tactics and gambling very early on.

So what does this all have to do with supply chains and business networks? Ironically, there are many similarities. With many B2B networks, trading partners are providing very detailed information on where orders, shipments, and materials are for customer delivery.  This detail enables buyers and sellers to benefit from fewer order and shipment errors (on the buy and sell side of the equation), streamlined order processing, and advance visibility into delivery schedules. Very similar to my neighbor’s visibility of the yellow school bus gave them early signals of their papers arrival or an advanced warning to flee the young collection agent.

On the flip side, most trading partners are not providing that same level of visibility detail as it relates to the payment and collections process.  Consequently, significant benefits are being missed relative to the cash to cash cycles for a company’s working capital management. In hindsight, if I had properly documented the avoidance techniques of Mrs. Arnold or gambling propositions by my other neighbor, I might have developed better strategies for improving profit margins.

When trading partners’ and needs are integrated with the entire payables and collection process through digitization of the supply chain, three transformations occur:

  • The order-to-cash continuum is streamlined and simplified

  • Errors, time, and cost are slashed; and

  • Discounts are captured, and supplier payment methods can be expanded

I am not here to address the nuances of supply chain financing with aspects of banks financing receivables and payables. I am here for the basics relative to trading partner integration. In a recent study by Elemica of over 650 suppliers, only 23 percent had integrated the Accounts Receivable invoicing with the trading partners accounts payable processes.

Of the ones that had integrated, significant savings in payment cycles, reconciliation processes, and payment discounts taken by the customer were realized. This does not include the qualitative aspects of better partner relationships. So why are more companies not integrating the cash to cash cycle of the business with trading partners?

Recent advancements in business networks make it easier than ever to integrate payments, collections and even obtaining payment information from working with trading partner’s banks. Sending invoices that are “approved to pay” digital signals is actually no different than sending an advanced shipment notice. Integrating payments from trading partner’s banks additionally streamlines the matching between payments and invoices.

On a broader level, it is a win-win for both parties. Buyers of products and services can obtain more discounts by paying approved invoices quicker while suppliers benefit from the obvious quicker collection period. When viewing the historical supplier delivery and product quality performance from the network, algorithms can be used to obtain supplier ratings. These ratings can be capitalized by the supplier to propose earlier payments from other customers on the network and to win new customers.

Using network partner discovery found on these trading partners B2B networks, suppliers can search and promote their products to other customers on the network and achieve higher returns. A true benefit of the network effect of the ecosystem. All trading partners can then optimize their cash flow across not only the procure-to-pay or order-to-cash cycles but the entire cash-to cash process.

Today, the focus of emphasis is on supply chain visibility, exception based collaboration, and understanding where our products are at any instant as it moves from supplier through logistics, to the customer. Maybe we should also not forget the inverse flow of payments through the same value network. All this may not be as exciting as global trade financing, however when integrating the payment and collection processing from buyers, sellers, logistics providers and sometimes the banks, we all can pay our mortgages and bills a little bit easier.

As far as my old newspaper route goes, the neighbor I would flip the coin over I would win half the time but had enough tips from others to cover the spread. With Mrs. Arnold, well I moved her to an upfront payment monthly plan which seemed to work out for everyone. Then again, we all have ways of handling our collection departments.

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