Most finance leaders often spend 30% to 46% of their time chasing payment statuses, maintaining approval chains, and responding to vendor requests. In essence, they let the payment cycle rule the department’s operations rather than the other way around, hoping that invoices would be included in the next batch and responding to vendor demands as they arise.
But what if we tell you that there’s a way to exit this vicious, time and energy consuming cycle? Finance leaders can regain control over their surplus cash, operations, and strategic focus by simply putting early payment discounting into practice and mastering payment scheduling.
Why is Yield Optimisation a CFO Priority Today?
Payment timing is no longer just an operational consideration; it is a cash optimisation and yield choice for CFOs. In an environment of rising inflation and tighter banking liquidity, many enterprises have extended payment terms to 90 or even 120 days, inadvertently starving suppliers of liquidity.
This starves suppliers of liquidity. However, in many scenarios, you can very easily idle cash into financial gains that frequently surpass the yield of conventional short-term investments by just managing when you make payments.
Revisiting Early Payment Discounts
For most CFOs, the concept isn’t new but its relevance has evolved in today’s interest-rate and liquidity environment. If the buyer pays before the regular due date, a modest percentage of the invoice amount is granted as EPD.
- Static Savings: The most popular style is “2/10 Net 30”, which gives the buyer a 2% discount if they pay within 10 days.
- Sliding Scale Discounts: These provide a larger discount for payments made right away, which subsequently drops as the deadline nears.
- Dynamic Discounting: A platform-enabled early payment model where discount rates adjust dynamically based on payment timing.