WHAT YOU LL FIND WHITE PAPER Q EMPOWERING SUPPLIERS Insights into What Suppliers Use, Want and Expect from Early Payment Programs

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1 WHITE PAPER Q EMPOWERING SUPPLIERS Insights into What Suppliers Use, Want and Expect from Early Payment Programs WHAT YOU LL FIND 2 State of Supplier Receivables 3 Optimal Early Payment Discounts 4 Early Payment Discount Options 5 Seasonal Payment Acceleration 6 Supplier Portal Use 2015 Taulia Inc. All rights reserved.

2 TABLE OF CONTENTS INTRODUCTION EXECUTIVE SUMMARY METHODOLOGY STATE OF SUPPLIER RECEIVABLES OPTIMAL EARLY PAYMENT DISCOUNTS EARLY PAYMENT DISCOUNT OPTIONS SEASONAL PAYMENT ACCELERATION SUPPLIER PORTAL USE ADDITIONAL INSIGHTS CONSLUSION APPENDIX... PAGE 1... PAGE 2... PAGE 3... PAGE 4... PAGE 6... PAGE 7... PAGE 8... PAGE 9... PAGE PAGE PAGE 12

3 INTRODUCTION Organizations worldwide would agree that businesses are always striving for better ways to partner with each other, build stronger relationships and find mutually beneficial ways of interacting that strengthen both the buyer s and supplier s financial and operational health. Supplier portals, electronic invoicing and supplier financing solutions prove to be a great way to better interact and partner with each other to meet varying financial and operational goals. But until now, we have not had meaningful insights into what suppliers think about using a self-service portal, invoicing electronically and getting paid early on approved invoices. To that end, Taulia recently conducted a supplier survey that provides a broad overview of the current state of supplier receivables and also examines the actual usage of early payment programs across businesses of all sizes and industries. This study adds to the rising evidence that early payment programs are gaining popularity as a convenient and affordable alternative financing option for suppliers. Many survey respondents indicated that they would take an early payment discount on every invoice if possible. Not only does this show a supply chain need for continual cash flow, but points to a strong opportunity for buying organizations to save millions through early payment programs. Page 1

4 EXECUTIVE SUMMARY It s a basic business axiom: the relationship between buyer and supplier is key to the success of both organizations. As a corollary, it is fair to say that the stronger that relationship is, the more all involved will benefit. understanding the supply chain Modern finance technology solutions such as supplier portals, electronic invoicing and automated early payment programs, streamline the payables process between buyers and suppliers and, presumably, build better relationships. Taulia, a provider of cloud-based invoice, payment and supplier financing solutions, was interested in learning more about how suppliers perceive some of these payment paths and options. To that end, Taulia recently conducted a survey designed to provide new, deeper insight into the suppliers who use the Taulia platform and their overall perceptions of early payment programs. The survey focused on key areas such as supplier receivables, including days sales outstanding, the timing of receipts and unearned discounts. Taulia also dove deeper into the early payment topic, focusing on optimal discount options, dynamic payment terms and cash acceleration. Survey respondents were also asked questions to learn more about seasonal payment acceleration and the realities of supplier portal adoption. The survey confirmed many assumptions on how suppliers perceive and actually use early payment programs. It also provided enlightening insights into supplier challenges and preferences when it comes to late payments, unearned discounts and accelerated payments. We feel the survey results provide useful information and new tools for helping strengthen the relationship between buyers and suppliers. Page 2

5 METHODOLOGY In 2014, Taulia conducted a study to gain insights into supplier opinions regarding the willingness to adopt and use early payment programs. The goal of the study was to collect the views of actual adopters of early payment programs within their organization to begin to understand key patterns in early payment use and identify what discount strategies and terms produce the best results. RESPONDENTS PROFILE Once the initial invitation was sent, more than 3,500 suppliers responded within the two-week period. Of the respondents, 73.2% are responsible for collections, DSO or cash management, and 59.6% are authorized to accept early payments or accelerate cash. 46.8% of the respondents completed the web-based survey in its entirety, thus that is the sample used in this report. Of that group, 93% of the respondents worked in privately-owned organizations and 61% had revenue less than $250M. More than 50% were in an accounts receivable or finance-related role, with other respondents in sales, AP, procurement or treasury. Every supplier who participated in the survey is a supplier of a Taulia customer. Page 3

6 STATE OF SUPPLIER RECEIVABLES HOW LONG DO SUPPLIERS WAIT TO GET PAID? For the majority of respondents, Days Sales Outstanding (DSO) averaged 30-to-40 days, with more than 25% of suppliers waiting more than 40 days to receive payment. Small business suppliers are waiting longer and longer to be paid after delivering goods. This trend greatly impacts their operation as cash flow is one of the biggest concerns facing today s small and mid-sized businesses. According to Forbes Magazine, lack of readily available working capital is a main reason many small and mid-sized businesses fail to succeed. To fill this cash-flow gap, suppliers often have to borrow at costly rates between payments and that only works if they can qualify for a loan. From a broader perspective, paying later negatively affects the financial health of the supply chain. WHAT IS THE AVERAGE TIMESPAN FOR CUSTOMERS TO PAY? Based on the survey results, most suppliers are paid later than their due date by an average of 9.3 days. This in turn causes financial stress, especially for smaller businesses that depend on a steady cash flow in order to maintain day-to-day operations. Interestingly, only 3% of respondents are being paid earlier than their invoice due date. This low percentage is surprising, especially when considering the vulnerabilities and supplier risk involved with a financially unhealthy supply chain. The scenario is not ideal for suppliers or their buyers. Small suppliers need steady cash flow to operate. If they cannot access it, they risk going out of business. When this happens, buying organizations are faced with numerous added expenses, such as sourcing new suppliers, increases in costs of goods and the manual labor involved with contracting and adding new suppliers. >45 DAYS LATE 2% DAYS LATE 10% DAYS LATE 18% 1-5 DAYS LATE 17% EARLY 3% ON TIME 50% Page 4

7 STATE OF SUPPLIER RECEIVABLES Technology helps solve the late payment problem by automating both the invoicing and payment process. Dynamic discounting and other early payment programs have been around for years, however, few organizations take advantage of these options. DO CUSTOMERS TAKE UNEARNED DISCOUNTS? The study also offers additional insights into the frequency of customers taking early payment discounts, but who did not in fact, pay early. That is, the customer takes the discount, but still pays after the negotiated early payment term. The Taulia study found that nearly 20% of suppliers have customers who have taken a discount after the early payment term date has passed. One reason for this could be a result of the rigidness of traditional early payment terms. These discounts create hit or miss types of discounting situations, eliminating any flexibility in payment terms and putting suppliers into challenging situations where discounts are taken unfairly. With the use of dynamic discounting, early payment discount terms shift depending on the date the customer pays. For example, a customer paying on day 10 receives a 2% discount. However, if paying on day 15, the customer receives a 1.5% discount, and so forth. For both supplier and buyer, this is a much fairer and more beneficial way to participate in an early payment program. And how does size of a company by revenue factor into whether their customers are taking pre-negotiated early discounts even though they pay after the due date? The study shows that this happens less for small companies than it does for larger organizations. Furthermore, smaller suppliers are more aware of unearned discounts when they are being taken. This visibility into customers taking unearned discounts likely enables smaller companies to limit how often they are taken. Page 5

8 OPTIMAL EARLY PAYMENT DISCOUNTS WHAT DO SUPPLIERS VIEW AS A FAIR EARLY PAYMENT RATE? Early payment programs are more often discussed from the buyer s perspective, particularly in terms of what they think is the optimal or fair annual percentage rage (APR). Alternatively, the Taulia study looked at this question from the supplier s perspective to determine what they would consider a fair APR. The majority of study respondents believed that a payment should be accelerated by 16 days in exchange for a 1% discount on the invoice, which is equivalent to a 21.9% APR. This group of suppliers consider the optimum discount rate they would give in exchange for faster payment to be 1.2%. For additional insight, the study aimed to compare responses by departments and roles from the buyer-side of early payments. Both AP and procurement, the departments most heavily involved in early payments, believed a higher APR rate was considered fair at 27.5% and 27.2% respectively. WE DO NOT ACCEPT EARLY PAYMENTS FOR DISCOUNTS 34% >30 DAYS FASTER 5% 30 DAYS FASTER 11% 5-10 DAYS FASTER 23% DAYS FASTER 27% Page 6

9 EARLY PAYMENT DISCOUNT OPTIONS WHAT TYPES OF EARLY PAYMENT DISCOUNTS ARE AVAILABLE TO SUPPLIERS? Suppliers can choose from two types of dynamic discounts: buyer-initiated discounts and supplier-initiated discounts. Buyer-initiated discounts are in line with traditional payment terms, with terms agreed upon between the buyer and supplier, then automatically executed once the invoice is approved. The supplier does not have to opt in each time or log into the portal to accept the early payment offer. Taulia refers to these as Dynamic Payment Terms. Supplier-initiated discounts are opt-in discounts, where the supplier has the choice to accelerate an individual payment once the customer approves the invoice. In this case, the invoice is offered after approval in return for a sliding scale discount. The survey asked respondents about both buyer-initiated discounts and supplier-initiated discounts. HOW WILLING ARE SUPPLIERS TO TAKE EARLY PAYMENT DISCOUNTS FROM CUSTOMERS? Regarding buyer-initiated discounts, more than 30% of the suppliers questioned in our survey are likely or very likely to accept a buyer-initiated discount. In terms of supplier-initiated discounts, we asked how interested are suppliers in participating in automatic acceleration of discounts? This is when suppliers agree to be paid early on EVERY approved invoice automatically, without the need to log into the portal to accept the early payment offer. When presented with this early payment scenario, more than 35% of suppliers are interested in automatic acceleration. The benefits add up quickly for suppliers when using an automatic acceleration feature. Payment is hassle free, always comes sooner, and provides a quick and easy way to receive cash that is owed to the supplier. It is also a good option for suppliers who do not have immediate online access to the portal, but still choose to never miss out on a discount opportunity. I would like to set up all invoices to be paid early at 0.5% discount. - Survey respondent of repair and maintenance company Page 7

10 SEASONAL PAYMENT ACCELERATION DO SUPPLIERS USE EARLY PAYMENT PROGRAMS AT SPECIFIC TIMES OF THE YEAR? Time of year is another motivating factor for suppliers to participate in early payment programs. The Taulia study asked suppliers how they use early payment programs to meet specific seasonal, quarterly and year-end cash needs or goals. The answers reveal that the last month of each quarter delivers the highest usage of dynamic discounting, timed with supplier s needs to meet specific seasonal cash goals and to project a more positive balance sheet position. Small businesses go through periods where cash flow ebbs and flows, depending on a number of factors. These include hiring new employees during a seasonal up-tick, buying new equipment during an in-demand season, and meeting tax obligations. Also, at the end of month, quarter and year coincides with when companies report their balance sheet position. By accelerating payments at these specific time periods, businesses reduce their overall Accounts Receivables and increase their cash on-hand. This in turn, makes the company look more cash rich and valuable. NEVER 53% YES, MONTHLY 13% YES, QUARTERLY 9% RARELY 18% YES, AT FISCAL YEAR-END 7% Page 8

11 SUPPLIER PORTAL USE HOW FREQUENTLY, AND FOR WHAT ACTIVITIES, DO SUPPLIERS VISIT THE PORTAL? Companies like Taulia sell to Fortune 500 and Global 2000 buying organizations, who in turn provide their suppliers with a portal that allows them to submit invoices, view invoice and payment statuses, update supplier records, maintain contact and banking information and, most importantly, get paid early on approved invoices. Several questions in the survey asked suppliers about their adoption and usage of the portal. The study shows that, on average, suppliers visit the Taulia portal at least once per week for a number of reasons. In addition to accepting and requesting early payments, the survey reveals that suppliers also use the portal to search for POs, submit electronic invoices and check the status of invoices and payments. The portal allows us to streamline our billing and payments along with managing our customer s POs. - Survey respondent of construction company Page 9

12 ADDITIONAL INSIGHTS FROM TAULIA PLATFORM SUPPLIER ADOPTION Complementing the supplier survey results, industry research coupled with data from the Taulia platform offers an interesting look into how buyers and suppliers use early payment programs. Buyers provide portals to their supply chain as a way to easily communicate and eliminate AP inquiries about invoice and payment status. The majority of organizations (nearly 60%) with more than $5 billion in annual revenues, are using a supplier portal, according to the results of the 2013 AP Automation Study conducted by the Institute of Financial Operations (IFO). Studies indicate that these programs normally take about three months before suppliers begin actively using the portal at a consistent rate. In order to maximize supplier adoption rates of portal options, buyers should implement a clear, effective supplier onboarding plan/process. To ensure greater success, buyers should not charge suppliers fees for using the portal, submitting invoices or participation in early payment programs. AUTOMATIC ACCELERATION Taulia platform data also provides insights into how many suppliers would opt in for automatic acceleration (all invoices, all the time) versus choosing manual acceleration (select invoices, one at a time) for early payment offers. The data confirms what was found in the survey, suppliers automatically accelerate more than 50% of early payments. This demonstrates the need for suppliers to access cash consistently, which is to say that the majority would never miss a discounting opportunity. Page 10

13 CONCLUSION IN SUMMARY The goal of this survey was to gain a greater understanding of the suppliers who use the Taulia platform and the overall perceptions of early payment programs. The survey results not only confirmed much of what we knew, but also provided a deeper understanding into how suppliers of every-sized business tactically and strategically approach early payment opportunities. The survey provided us with five key takeaways: Suppliers often struggle with high DSO, late payments and unearned discounts. The APR that is considered fair by suppliers is significantly higher than alternative investment opportunities corporations see, especially since paying approved invoices early is virtually risk-free. Suppliers express a strong desire to take accelerated payments. Suppliers commonly use automatic acceleration of all invoices or use payment acceleration more strategically to meet seasonal cash flow needs. Customers offering their suppliers access to an online portal provide value beyond early payments alone. CREATING A WIN-WIN SOLUTION These results give us the data we need to refine the Taulia platform to better serve our customers and their suppliers and help build a stronger partnership between them. Page 11

14 APPENDIX DETAILS ON SURVEY RESPONDENT QUALIFICATIONS Taulia conducted this survey of pre-qualified suppliers in Of the 3,553 suppliers that responded to the survey: 73.2% are responsible for collections, DSO or cash management 59.6% are authorized to accept early payment or accelerate cash Based on the two prior questions, 1,639 respondents were qualified and completed the survey. RESPONDENTS FROM PRIVATE VS. PUBLIC COMPANIES Private 1, % Public % Grand Total 1, % TYPES OF COMPANIES WHERE RESPONDENTS WORK; BASED ON REVENUE Emerging <$250M 1, % Small $250M-$500M % Mid $500M-$1B % Large $1B-$5B % Very Large >$5B % Grand Total 1, % TYPES OF COMPANIES RESPONDING Services % Products % Both % Grand Total 1, % Blank 22 Page 12

15 APPENDIX DETAILS ON SURVEY RESPONDENT QUALIFICATIONS ROLES OF RESPONDENTS WITHIN THEIR ORGANIZATION Accounts Receivable % Finance % Sales % Accounts Payable % Procurement/Buyer % Treasury % Other % Grand Total 1, % Page 13