How JetBlue is Reaping the Rewards of Dynamic Discoun:ng. Joni Geurts - JetBlue Paul Kerins - ipayables

Transcription

1 How JetBlue is Reaping the Rewards of Dynamic Discoun:ng Joni Geurts - JetBlue Paul Kerins - ipayables

2 What is Dynamic Discoun:ng? q Tradi:onal Terms Determined with supplier during contract nego:a:ons One sta:c net due date One sta:c discount due date q Always Take Discount Buyer Pay afer discount due date Take full discount anyway q Tradi:onal Terms with auto- sloping Use tradi:onal term Pay afer discount due date Take pro- rated discount q Dynamic Discoun:ng Customer offers discount to supplier Supplier selects payment date Discount calculated by customer APR

3 Poten:al Hurdles External Factors to Consider: q Some providers charge addi:onal licensing fees to use it. q Dynamic Discoun:ng not as successful with paper invoicing. q Some providers have limited early pay func:onality (no auto- sloping, vaca:on re- route, escala:on s). q Some providers charge discount share on standard terms. q Most providers charge extra for supplier adop:on. Internal Factors to Consider: q Must have working capital. q Must have the approval from the Treasury department. q Must understand the cost of capital to determine the appropriate APR. q Possible Wall Street implica:ons to increasing working capital. q Need to inform / encourage suppliers to use the discoun:ng feature. q Making a business case.

4 Prior metrics: JetBlue Before Implementa:on q Cash Discount $35k (2007) q DPO Averaged 26.2 Days Processing Issues: q Limited visibility at a Vendor Level q Impacted AP team as well as Procurement q There was a lack of awareness in procurement of related vendors, where JetBlue was receiving 2% / 3% cash discounts from only one small division of a public company. Leveraging these supplier rela:onships could yield incremental cash discounts (~ $500K). q Due to vendor and internal delays, invoices were not available on a :mely basis to capture cash discounts. q Exis:ng DPO was 26.2 (many companies have moved to net 45, net 60 or in certain industrial companies, net 90 days).

5 JetBlue s Success with Automa:on & Discoun:ng JetBlue s Perspec:ve: Supplier Side: Accounts Payable department has generated substan:al revenue. Savings generated has offset AP Automa:on costs. Suppliers gain financial flexibility. Cash flow is improved / suppliers get paid faster. Treasury can change APR when cash is needed. Annual Disbursements of $2 Billion. Invoices get processed faster. 6,600 ac:ve vendors. SAP; Integrated with InvoiceWorks, TRAX (FAA tracking program for all A/C parts and repairs), and FirstStrike. 12,000 invoices per month are entered into our e- invoicing system. Only 11 crewmembers in Accounts Payable, divided by airports, region and AircraF related expenses. Invoice processing :me down to just 7 days for internal approvals. Standard Discounts were not a priority for procurement (only 2.6% of vendors offered a standard discount).

6 Solu:ons in the Market Place There are a few providers in the AP Automa:on marketplace that offer a version of Dynamic Discoun:ng. An organiza:on needs to determine what is important to them and find the best fit for their needs. When evalua:ng the par:cular needs of our organiza:on, there were some important items that factored into our decision: q JetBlue Chose a Provider Who v Does not charge a License Fee. v Whose discoun:ng is standard with the AP Automa:on Planorm. v Does not charge for Standard Discounts. v Has reasonable discount share on auto- slope and dynamic discounts. q Other Providers We Did Not Choose - v Charged Hundreds of Thousands of dollars in License Fees. v Charged for standard discounts. v Expensive discount share on all discounts. v Had no escala:on s and weak workflow

7 How JetBlue U:lizes it Supplier Flagged in InvoiceWorks as eligible for Early Pay Invoice Submitted in InvoiceWorks Invoice Approved or Matched Invoice Sent to SAP Invoice Status Sent Back to ipayables Supplier Offered Early Pay via At JetBlue, we had specific workflow needs that led to the following configura:on: Supplier Ops for Early Pay Online Memo Transmitted to SAP AP Approves Memo AP Modifies the Terms on the Original Invoices to Pay Pay Now Now in SAP Memo Routed to AP Memo Created in InvoiceWorks Automatically with Default Data Memo and Original Invoice Pay together

8 How JetBlue U:lizes it Pre- Offering Stage The first por:on of the process shows how JetBlue makes sure Dynamic Discoun:ng was only offered to suppliers we selected. The payables system s connec:ons to InvoiceWorks ensured that the system knows which suppliers can par:cipate. JetBlue decided against showing the supplier the Dynamic Discoun:ng op:ons up front, so the op:on did not appear at the :me of submission, but only afer approval and transmission. Supplier Flagged in InvoiceWorks as eligible for Early Pay Invoice Submitted in InvoiceWorks Invoice Approved or Matched Invoice Sent to SAP Invoice Status Sent Back to ipayables Supplier Offered Early Pay via

9 How JetBlue U:lizes it Supplier Ops for Early Pay Online Memo Transmitted to SAP AP Approves Memo AP Modifies the Terms on the Original Invoices to Pay Pay Now Now in SAP Memo Routed to AP Memo Created in InvoiceWorks Automatically with Default Data Memo and Original Invoice Pay together Post- offering Stage In this part of the process, afer the supplier has opted for early payment, a discount credit is created. Not every company is going to want to do this with credit memos, the other configura:on op:on is to adjust the terms of the invoice so the discount is included in the invoice itself. The end result is the same, the invoice is discounted and the invoice and discount are recorded with the appropriate coding in the payables system.

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