Will the recent EU directive* intended to crack down on late payers make a difference to businesses? Arguably, we’ve been here before. The EU’s original late payments directive was adopted in 2000, and the latest update expects all member states to comply by 2013.
But it’s had little effect in the business world. The same is true of the UK Late Payment of Commercial Debts Interest Act 1998, which certainly hasn’t stopped companies pushing their contractual terms with suppliers.
In September, the US Federal Reserve reported that companies are sitting on $1.84 trillion in cash and other liquid assets, tying up the economy. And while choosing to hold payment seems like a common-sense answer in the face of adversity, some AP departments are finding that holding onto every invoice is not always the best financial decision.
For example, with proper financial analysis, companies could save much more money by introducing dynamic discounting. This means the buyer pays early, in return for a discount from the supplier: and the earlier the payment the greater the discount.
This means instead of paying at 30 days, the buyer agrees a 2% discount in return for paying within 10 days. Compared with current rates of interest, that's a fantastic return. But actually managing this efficiently requires a leap of faith, and the right systems in place to monitor the AP cycle. Perhaps it’s this return that will drive the uptake of invoice automation and accounts payable suites?