5 Pillars Of A Successful Early Payment Program#supplychain #fintech #tradefinance #supplychainfinance #digitization #digitaltransformation #Procurement
Early payment programs offer access to working capital to suppliers against invoices before due dates, in exchange for discount rates.
Sellers prefer early payments against invoices because it reduces their cash conversion cycles and enhances and deepens relationships with their corporate anchors.
There are two types of Early Payment Program (EPP) basis the buyer’s objective – Dynamic Discounting (DD) and Supply Chain Financing (SCF).
Dynamic Discounting allows suppliers to select which invoices to clear on priority based on incentives like discounts, etc. In Dynamic Discounting, the buyer has the option to invest their available treasury funds or provide such access to capital through a financier.
Whereas, in traditional Supply Chain Finance, the buyer only provides for such access to capital through a financier, and the financer standardizes the terms of the program.
However, things are not so simple in real life. Inspite, the growing acceptance of early payment programs, few programs scale and supplier reap the benefits promised through them.
Here are five critical pillars of a successful Early Payment Program:
1. Stakeholder Buy-In: Trust And Confidence Of Suppliers
A good early payment program for suppliers has to be a sustainable proposition in the long run. That’s right—the only early payment program destined to end up being called “good” is going to be the one which would be sustainable in the long run.
Without addressing all the challenges necessary to understand suppliers’ businesses thoroughly by involving procurement teams, even before Day 1, it would be impossible to create any such sustainable program.
In fact, it’s only a focused joint effort to understand suppliers’ business by procurement teams along with treasury teams and info-tech (IT) teams which could hope to effectively address all concerns of suppliers.
Only such an effort would help ensure digitization of all appropriate steps incorporated within the product & program onto which suppliers would eventually get on-boarded.
In fact, Veefin’s solution is the result of precisely such a combined and focused effort. It has been designed to provide a transparent and customized solution to meet all requirements of suppliers, scale the program and effectively solve for the challenges.
2. Flexibility: Unlimited Discount Offers And Options Galore
Early payment programs simply have to be made attractive and resourceful enough for the supplier ecosystem to get interested.
How exactly they are made interesting to suppliers is both a refined fine art as well as a science which supply chain solution providers would have to figure out, but there’s much more to it than just that.
For instance, discounts could get far more attractive when solution providers like Veefin suggest attractive rates instantly, using artificial intelligence (AI)-backed algorithms, basing these on supplier profiles and historical trends.
Now, that would be something which today’s suppliers who demand flexibility to seek early payments, would really find attractive. With automated systems like Veefin’s, such flexibility could instantly be provided, to automatically calculate discounts, amount payable basis, days left for the due date and just about everything else.
3. Transparency: Reliability, Trust And Credibility
Transparency builds trust and credibility. If early payment programs are not transparent, there is every chance that sellers may feel that they are being taken on a ride. Hence, a healthy amount of transparency will certainly convince and reassure sellers who would be interested in such programs.
Consistency is another factor which will convince sellers—that is, consistency in communications and managing transactions. Consistency ensures that sellers know what exactly to expect and that can be extremely reassuring to them. They would have to know that a certain transaction could go only in a well-known and familiar way and not in some unpredictable way leading to some unpleasant surprise. Consistency reinforces trust and credibility established by transparency.
Sellers must have visibility at all times on invoice status, best available discount rate, the number of days within which payment can be received, besides other things.
In this way, sellers and buyers are able to trust one another even more. This contributes to the success of early payment programs. It is impossible to provide such levels of transparency through manual paper based systems. Buyers would need to rely on automated solutions and digital platforms to offer their sellers improved visibility and secure trust.
4. Connect With Suppliers: Automated Proactive Engagement
Automated marketing communications to engage suppliers is crucial to run a successful early payment program. High supplier interest must be ensured at any cost and automated communications is the only way to do it.
Suppliers must be kept constantly informed about the program, its benefits, and how exactly it would impact their businesses in a positive way.
After initiation of the programs as well, suppliers must be passively engaged to inform regarding updates on the program, tips to manage their transaction better. Such communications would ensure that sellers are continuously engaged with the initiative.
Such engagement must encourage collaboration between buyers and sellers, avoiding any competition which may pit buyers against sellers or vice versa.
All such proactive engagement must be designed to take the wind out of the sails of competing supply chain finance solution providers.
5. Technological Agility: Built To Host Evolving Product Structures
The very nature of supply chain solution-based early payment programs makes it necessary for them to respond to ever changing market conditions.
That calls for engaging continuously with dynamic differences in constantly evolving data as well as product structures, according to whatever variables or situations market conditions may throw up.
Unless supply chain solutions based early payment programs are built on systems with built-in agility and robustness to handle such dynamics, there is a high chance of failure.
However, solutions such as Veefin’s have precisely such robust technological strengths which are configurable to respond dynamically to the latest market conditions.
Therefore, given the need for such agility, it is crucial to collaborate with the right technology partners to roll out a successful financing solution.