What is Active Payable Discounting?
Active Payable Discounting is a business process through which supply chain buyers actively and dynamically retire their accounts payable ahead of schedule at a discount. Buyers benefit by earning double-digit risk free annualized returns on funds employed to pay suppliers early at a discount. Suppliers benefit by turing their approved invoices into immediate cash without having to rely on lenders or outside funding sources.
How do buyers benefit from BidPay’s approach to Active Payable Discounting?
BidPay® creates a liquidity marketplace that benefits both buyers and suppliers. Buyers and suppliers establish the market price for faster payments through a bidding process on BidPay®‘s patent pending portal. Buyers with surplus liquidity determine the annualized yield they require to deploy surplus liquidity to retire payables ahead of schedule. Suppliers that bid discounts which meet buyer’s financial objectives obtain immediate payment on approved invoices while buyers earn risk-free double-digit reruns on investment.
BidPay® creates substantially greater annualized returns for buyers than investments sharing similar risk and maturity profiles. Buyers establishing their own criteria for acceptability of annualized returns on cash employed to retire payables ahead of schedule. Buyers may take an altruistic approach by accepting very low annualized returns or conversely, they may earn greater than 10% spreads between their cost of short term borrowings and returns generated through BidPay® auctions.
How does BidPay find hidden discounting opportunities for buyers?
Credit constrained suppliers are reluctant to appear “needy” and therefore may accept lengthy payment tems imposed on them by their large customers as a fact of life. Bidpay finds missed discounting opportunities for buyers while providing a valuable source of liquidity for your cash- and credit-constrained parts of your supply chain.
Buyers often underestimate suppliers’ demand and frequent need for faster payment. BidPay® finds that demand by actively offering suppliers the opportunity to obtain faster payment at a discount. Many buyers assume their suppliers have access to capital and credit markets and are able to always obtain sufficient working capital funding to wait 30 to 120 days for payment on their invoices. The fact is that credit is not universally available in ample amounts to keep your supply chain free of quality control and late delivery problems.
Your supply chain is only as strong as its weakest link. The weakest link is nearly always the supplier that won’t tell you it is cash constrained. This basic misunderstanding among supply chain buyers not only exposes your company to unnecessary risk, but also causes you to overlook lucrative discount-generating opportunities that can produce $ millions of reduction in your COGS.
Which buyers benefit most from BidPay?
Buyers with occasional surplus liquidity that impose lengthy (or that are considering stretching) supplier payment terms benefit the greatest by offing BidPay® as a cash flow solution for their suppliers. Buyers with a large and diverse base of small to mid-sized suppliers, located domestically or internationally, will not only realize direct financial benefit by deploying BidPay®, but they will also strengthen their supply chain by increasing supplier on-time delivery rates and improving supplier quality control.
How do buyers optimize the discount opportunity window?
Buyers optimize the discount opportunity window by approving invoices quickly AND by offering payment terms to their suppliers between 45 and 120 days.
How much should I project to earn by retiring payables ahead of schedule?
Based on our first-hand experience involving millions of supply chain transactions valued in the $ billions USD, buyers should project to net $5 million for every $ billion of payables placed for auction.
Past experience does not guarantee future results. BidPay® does not guarantee every client will achieve the same result in every payable auction; however, BidPay® guarantees that if auction results ever fail to meet clients’ financial objectives, BidPay® earns no fee and its client incurs no expense.
Are suppliers able to bid on payments that have not been approved?
No. Supplier invoices are not eligible until they’re approved for payment. Once per week, buyers upload a file to BidPay® that contains only those supplier invoices which have been approved and authorized for payment, but that are not yet “due” by their terms. BidPay® sends notices to suppliers when they have invoices on which they may obtain payment ahead of schedule.
Why should my company deploy surplus liquidity to retire payables ahead of schedule?
The use of temporary surplus liquidity or excess short-term borrowing capacity to retire payables at a discount ahead of schedule produces a risk-free net interest margin of over 1,000 basis points on ever dollar of payables retired ahead of schedule, on average.
On average, short-term corporate borrowing rates for healthy companies is approximately 3% per year (Source: Wall Street Journal, June 4, 2012). Liquidity ratios are un-impacted when one short-term liability (short-term borrowings) is used (increased) to reduce another (trade payables). Compare returns generated through BidPay® to returns your company is earning on its cash equivalents and short-term investments of equal maturities.
How does BidPay compare to traditional supply chain financing programs?
Like other forms of receivable financing, supply chain financing marketed to your suppliers by banks and finance companies require your suppliers to apply and QUALIFY. BidPay® is fluid. Suppliers do not have to apply, register, or qualify for rigid underwriting requirements. Obtaining payment ahead of schedule through BidPay®‘s technology is available to all your suppliers no matter where they’re located. Supply chain financing programs restrict availability to only certain suppliers.
The weakest links in your supply chain are your suppliers that may not qualify for traditional programs or are credit-constrained in some manner. Fewer than 10% of suppliers seeking receivable financing are approved (Source: Interstate Capital Corporation, December 2014).
What will our suppliers think if we employ an active payable discounting model like BidPay?
Presently, suppliers discount $ trillions of receivables annually. Many more $ trillions of receivables are financed annually through a variety of other methods. Your suppliers will be delighted you’ve provided them an option to obtain faster payment directly from you, reducing their dependence on outside funding sources.
85% of suppliers state a willingness to occasionally or always accept discounts for faster payment. The liquidity marketplace created by BidPay® will be received by your credit- and cash- constrained supplier as an attractive alternative to borrowing against and factoring their accounts receivable.