Optimizing the approval process for early payment discounts.

Srishti: Hello, everyone! My name is Srishti Rajveer, and I am a digital transformation consultant at Hyperbots. Today, I'm delighted to have Claudia Mejia as my guest. Thank you so much for joining and taking the time, Claudia.

Claudia Mejia: Hi, Srishti. Thank you for having me.

Srishti: Of course. So, just a little bit about Claudia. She is the managing director at Ikigai Edge, and today we'll be discussing the topic of optimizing the approval process for early payment discounts. So, shall we get started?

Claudia Mejia: Sure.

Srishti: Alright, to start off with — what are early payment discounts? And why is it important to have a clear approval process for them?

Claudia Mejia: Well, early payment discounts are basically incentives offered by the vendors for the payments. So, for example, we can have a 2/10 net 30. Basically, what that means is that the vendor is offering a 2% discount if the invoice is paid within 10 days, even though the standard payment is within 30 days. So that's basically what it is. It changes by vendor, and the standard terms can be 30, 60, or even 90 days. Right? Nobody wants to go to 90, but those are the terms depending on the vendor, and what is important with the standardization of these things is that it helps to make sure that there are no billing errors and basically helps with the cash flow and the profitability of the business.

Srishti: That absolutely makes sense. How are early payment discounts typically integrated into purchase orders and invoices?

Claudia Mejia: Well, yes; however, it usually initiates within the vendor agreement. That's where it usually starts, and then in the process, when you request a PO and then when you receive the invoice, the vendors usually reiterate those standards. So pretty much that way, you make sure that you're accurate. Have that agreement that you have in the contract — you have it also in the invoice.

Srishti: Understood. Who usually holds the authority for overall invoice approval? And how is that process structured?

Claudia Mejia: It usually is an authority matrix. It starts with business owners — they are the ones requesting POs — but obviously, finance has a major role in these authority approvals.

So, even though it can start from a business unit, it usually finishes with the approval, either from a finance director or CFO, and also depends on the thresholds. Sometimes, these processes can be automated, but it's ideal to have a human in the loop to make sure, well, the POs match the invoices and so forth.

Srishti: Understood. That's very interesting. So, should early payment discount approvals be solely a finance decision, or should business teams also be involved?

Claudia Mejia: Well, it's important to be a collaborative effort, right? The business unit knows how to work with the vendor. They have a relationship with the vendor and what the operations are, and how that relationship impacts the operations. On the other side, finance makes sure that all the strategic goals are linked to the cash flow and the benefits, financially speaking.

So I believe it's really a collaboration between both teams. It's not one or the other. It’s a mutual approach to vendor management and payments.

Srishti: Definitely something to keep in mind. What criteria should be used to decide which early payment discount to approve?

Claudia Mejia: Well, from a finance point of view, obviously, cash flow availability is important. And it depends on the cost savings. So if the discounts are great compared to the cost of capital, then usually, from a finance perspective, you're going to approve those types of deals. But again, it depends on the vendors. It depends on how it impacts the operations. It's not so black and white. But at the end of the day, conceptually speaking, if your discounts are greater than your cost of capital, you could usually go for it.

Srishti: I see. What level of authority should be required for approving early payment discounts, and should this process be centralized?

Claudia Mejia: Yes. So, having a centralized process obviously helps to make sure that there are no misapplications, or, for example, all the business units are approving one thing, and then finance is approving other things. That's why, when we talk about collaboration, it has to also have a workflow that goes from the business units to finance and the approval processes based on thresholds. This centralized system ensures that you always look not only at the operations but also at the financial goals, and that has to be centralized in the right process.

Srishti: Understood, and that really brings me to the last question of the day. How does leveraging technology, such as Hyperbos Payment AI Copilot, improve the approval process for early payment discounts?

Claudia Mejia: Well, with technology today, you have a lot of systems that do the 2-way matching and the 3-way matching. So that's the standard today. But what Hyperbos or the AI copilots can do is actually give you suggestions for the optimal payment. So they will be able to say, “Hey, you have a discount here, you have the cash flow — this is something that you should pursue.” And with that type of suggestion, you can make faster decisions and be able to track these things on time and be very precise on how to manage cash flow. So that's the benefit of having a system like that — it will detect not only the discount, it will tell you how to go about it. And well, that's great to have at your fingertips.

Srishti: Thank you so much for sharing your insights there, and with that, we have come to an end for today's discussion. Also, big thanks to our viewers, and I'll see you around. Thank you, and have a very good day, Claudia.