Processing payables discounts

The effective interest rate on most early payment discount offers from suppliers is so advantageous that a company should always accept such deals and pay early. However, it is all too easy to lose track of these offers and simply pay when the invoices are normally due for payment, thereby losing the early payment discounts.

The simplest way to ensure that all early payment discounts are accepted and paid in a timely manner is to examine every invoice at the point of initial receipt, and set to one side all invoices containing discount offers. This group of invoices containing discounts can then be shifted to a different process flow that emphasizes faster data entry, approval, and payment processing. Where possible, approvals are made using the negative approval system, where payments will be made unless an authorized person protests an invoice. If a positive approval is needed for these invoices, either manually walk them through the approval process or install an automated workflow management system that automatically routes them to a backup approver if an invoice is not approved by a specified date.

In short, special handling may be appropriate when it is imperative to accept early payment discounts that have extremely favorable effective interest rates.

Related Courses

Payables Management