Outlets, distributors break up drift time to fortify fee cycles
One issue many suppliers face is getting paid on time. It’s already difficult when some retailers are pushing payment terms out as much as 60 and 90 days. But what happens when you have additional delays, thanks to problems with the invoice and related documentation.
We’ve talked a little bit preciously about how suppliers can get paid “faster” with EDI. It’s not that you actually get paid sooner, it’s that you get paid on time by eliminating delays due to discrepancies between purchase orders, packing lists and invoices. By using automated fulfillment solutions:
- The supplier receives an electronic purchase order and sends a purchase order acknowledgement (POAs) to confirm and make any revisions to pricing and quantity.
- Later, the supplier sends an advanced shipping notification (ASN) based on the POA.
- The order arrives on time, with an up-to-date packing list, based on the ASN.
- The supplier sends an invoice, which matches the ASN and POA.
- The retailer compares these to the PO in a three-way match. When it matches, the retailer pays the invoice on time. (It only feels early because it doesn’t always happen this way.)
Before automation came along, retailers did all this matching by hand, which often created delays because the details of the transaction didn’t match. They had to investigate the discrepancy and correct it.
However, it’s possible to make the reconciliation — and payments — happen automatically. With a robust EDI solution, the three-way match happens automatically. Once a match is successfully made and there are no discrepancies, it’s followed by the invoice being scheduled automatically. Any invoices that have mismatches can be set aside for further research, avoiding any scheduling delays for successful matches. Through electronic funds payments, Money can transfer on the specified date from the retailer’s bank to the vendor’s. Depending on the agreements and relationships between the retailer and vendor, payment for the invoice could potentially be exchanged within hours of the invoice being electronically transmitted.
A by-product of electronic payments is a reduction in the payment mailing process for the Retailer and automated remittance reconciliation for the suppliers. Managing manual check issuance requires the printing and stuffing of the checks in envelopes. By remitting payments electronically, the staff/resources needed for this process is reduced, if not eliminated. In addition, the remittance detail can be shared with the suppliers electronically, allowing those partners to conduct systematic matches of the payment to their accounts receivable systems and, similar to exception management of retailers 3-way match with invoices, suppliers can conduct a two-way match using the remittance detail to match the transaction in their Accounts Receivable.
Cutting The Float Time
But, here’s the issue. Today, many retailers still prefer to write checks and mail them. The time that it takes for the check to travel by mail is called the “float.” In the past, retailers appreciated the float, because they could hold on to their money a little longer. Several years ago, when the post office wasn’t as efficient, the float could be anywhere from 5 – 7 days. These days, it’s usually 3 – 5.
One reason for retailers to embrace electronic payment is that vendors sometimes offer early payment discounts — as much as 1 – 2 % — if retailers pay before a certain deadline, such as seven days early. By using electronic payments, retailers can take advantage of those early payment discounts, and save thousands of dollars — even tens or hundreds of thousands — per year. But they lose that float time.
The discussion that’s taking place today between the retailers and suppliers is the matter of splitting the float, so everyone still benefits from electronic payments. Retailers and suppliers are agreeing to split the float down the middle, so retailers can hang on to their money a little longer, but the suppliers get paid a little faster. Discounts are being offered, payments are being made quicker.
If you would like to learn more about how your organization can use automated EDI and electronic payments to save money (or get paid on time), please visit the EDI Here website for more information.