Virtual Credit Cards Are the Modern Day Early Payment Discount
April 23, 2018
Early payment discounts are a time-honored tradition in business-to-business (B2B) transactions. Suppliers who offer these types of discounts win by getting paid faster, thereby improving their cash flow, and companies that are able to take advantage of these discounts get the cost savings. But are early payment discounts really the best way for businesses to save money with their suppliers these days?
The particular terms of the discount will vary by industry, but the discount amount offered is typically low, at 1% to 2% for payment within 10 days. Over the course of a year, this can add up to a sizeable annualized savings for a business, but only if they are consistently able to pay early. Unfortunately, most organizations (69%) will only capture discounts from suppliers some of the time, according to a Paystream Advisors report, essentially leaving money on the table.
The report goes on to suggest that business who miss discount deadlines may be too small, or have too few suppliers, to invest the extra work necessary to capture the discounts. However, a major factor for larger companies is an inefficient or lengthy accounts payable process. Specifically, the organizations surveyed said that the top three problems they faced in terms of capturing early payment discounts included lengthy approval cycles (41%), missing information on invoices (39%), lost invoices (36%), too many exceptions (32%), manual invoice routing (31%), and decentralized invoice receipts (30%).
Modern technologies like accounts payable automation can go a long way to solving these issues by speeding up approval cycles with automatic routing, ensuring that invoices never go missing and are coded accurately, and payables documents remain centrally accessible. But even with these innovations, some businesses may still find that the discounts offered by vendors are not robust enough to incentivize early payment. In that case, these businesses may want to look at the new technologies have been gaining ground in the B2B payments world.
A 2017 NACHA survey found that check payments have been declining since 2014 as electronic payment methods, like ACH, cards, and wire transfers have increased. Unlike checks, which rely on postal deliveries and paper, electronic payments offer businesses greater operational control and more fine-tuned cash flow management, says the report. In particular, virtual credit cards are a form of electronic payment that offers additional benefits like increased security from payment fraud and cash-back rewards programs.
Unlike early payment discounts, the cash back programs associated with virtual credit cards offer a percentage back based on your spend, not your date of payment, and that percentage is typically higher than what you would receive from an early payment discount. Better yet, as virtual credit cards allow for full integration with your accounting software, the processing costs are lowered.
Discover whether your business is ready for virtual credit cards by downloading our checklist, or dig deeper into the benefits of virtual credit cards in our whitepaper, Getting Started with Virtual Credit Cards.
With So Many Payment Options, How Do You Choose the Best One For You?
From virtual credit cards and e-check to ACH, wire transfers, or traditional paper checks, there are more ways to pay than ever before. Understanding your options can help you make the right decision for your business.
The Case For Phasing Out Checks For Good
Checks are still the primary payment method in B2B payments, accounting for 40% of all transactions. This stands in stark contrast to the digital experience today’s organizations are striving to build.
Empower AP with Real-Time Vendor Payment Updates
With Beanworks AP automation, companies can look up the status of vendor payments anytime and from anywhere. By automating AP, all documents are stored in real-time and accessible from the cloud, making visibility and transparency a guarantee.
Straight To Your Inbox
Stay up-to-date on top accounting and finance trends
Sign up for our newsletter and receive our latest resources, news and insights.
Learn More About Beanworks
Discover how AP automation can free your accounting team from manual data entry, delays, and paper-based processes.