Frequently Asked QuestionsSAP Ariba | Discounting Capability

Discounting Capability and Overall Value of SAP® Ariba® Payables

The discounting capability of the SAP® Ariba® Payables solution automates early-payment discount management from initial offer to agreement, including transactions with prorated or dynamic discounting. It uses Ariba Network to integrate back-office systems in the cloud so that you can connect to virtually all your suppliers. A collaborative payment management portal manages a multifaceted discounting strategy while enabling suppliers to view payment status and accelerate payment on demand.

4 Delivery

5 Buyers

7 Suppliers

8 General Functionality

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How does the discounting capability differ from other offerings?

There are several advantages to the discount capability of the SAP Ariba Payables solution. First, it’s part of a comprehensive payables suite, so it can be tightly integrated with our payment and supply chain finance capabilities. You can manage all these solutions from one platform. While there are other solutions that combine payment and dynamic discounting, a key differentiator for SAP Ariba solutions is the caliber of our payment partners. Other providers often partner with early-stage fin-tech companies with limited resources and track records. Conversely, our business partners for payment, which include Discover and First Data, are established companies that process payments over secure, global payment infrastructures.

Another differentiator is our working capital management services team, which brings years of experience, expertise, and payment-term data to help you formulate a comprehensive working capital program. The program can balance static and dynamic discounting options with a days payable outstanding (DPO) improvement program so you can maintain or extend your DPO while capturing more discounts.

The SAP Ariba solution also provides valuable insight into the propensity for suppliers to take discounts. Our services use proprietary data and methodologies to analyze your supplier spending and payment terms. Based on our extensive knowledge of which suppliers and supplier categories are more likely to embrace early-payment discounts, our experts can help you organize and categorize your suppliers according to the right discount offers. Then we work with you to create a strategic plan tailored to your specific needs to standardize payment terms and onboard suppliers for early-payment discounting.

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What are the best practices recommended to maximize the success of an early-payment discount program?

Combining a payment-terms standardization and rationalization program with early-payment discounts helps drive adoption. Many organizations don’t effectively manage their payment terms. Without a defined strategy and careful management, payment terms can proliferate as buyers negotiate contracts with suppliers. Organizations with a team of buyers and thousands of suppliers can have more than 100 distinct payment terms – and include unusual terms such as “net 7 with no early-payment option.” These widely varied payment terms can hurt DPO performance by having you pay suppliers more quickly than other companies in your industry, putting your company at a competitive disadvantage. To prevent that, we recommend assessing your payment terms in conjunction with a discounting program.

Buyers with global aspirations should prioritize their plans to onboard suppliers and achieve objectives based upon country-specific regulations that govern service providers, such as SAP. To start a program, consider focusing on Austria, Canada, Germany, Switzerland, and the United States. These countries typically deliver the best discounting results because regulatory requirements do not require suppliers to create credit memos to adjust tax for dynamic discounting. U.S. and European buyers can extend discounting programs to many countries around the world for transactions that are VAT exempt. You should exclude self-billing and paper invoices from your discounting program, which might limit the results of your discounting program. Meanwhile, the supply chain finance capability of the SAP Ariba Payables solution should also be considered as part of a larger discounting or working capital management program, as the tax complexities that must be considered for dynamic discounting don’t apply to supply chain finance.

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DELIVERY

What countries and which currencies does the solution support?

Our discount program is available globally, with support for the United States, Canada, Hong Kong, Malaysia, Australia, New Zealand, Singapore, South Africa, and 14 European countries. We can easily add and manage any currency with our platform.

To facilitate global rollouts, our discounting capability supports the creation of dynamic discount credit memos on your supplier’s behalf in countries where credit memos are required. Buyers can also configure currency-specific early-payment limits and annual percentage rates for buyer-initiated discount offers, ensuring better business controls and maintaining the stability of their DPO.

We don’t have the resources to engage suppliers about discounts. Can you assist?

Absolutely. Our working capital management services team can help. As few companies have the bandwidth to manage such a program, our team will actively manage the program for you and use our proprietary rapid ramp methodology to reach out to your suppliers to accelerate their recruitment and onboarding and drive rapid adoption of your dynamic discount offers.

Our consultants can assess your current payment terms, working capital, and cash positions, compare them against industry averages, and formulate a plan to drive sustainable working capital improvements. And as a solution provider with a broad focus, we offer consultants who can handle many different activities and programs, such as:

• Leading the rollout or expansion of converting checks to electronic payments

• Managing purchasing card, supply chain finance, and remittance data cleanup programs

• Jump-starting related working capital programs • Reaching out to new suppliers as part of your program

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Who is responsible for customer service and support?

SAP provides full customer service and support for your dynamic discounting program. We guide suppliers through account configuration and offer technical support when using the dynamic discounting platform. For any invoice or discount discrepancies, we work with buyers to identify the reasons and help to resolve them.

Are there any process changes that will need to take place in our accounts payable operation to accom-modate the solution?

There are no changes you need to make. Our discounting capability integrates with all major enterprise resource planning systems, and it can also simply receive the required information through an invoice file transfer.

BUYERS

What are the cash returns I can expect from these discounts?

Cash returns vary, as they are determined by an agreement between buyers and suppliers. They range from annual returns of 8% to 24% or more. Discounts can also vary by supplier groups and time of year. Part of our consulting engagement involves a detailed discussion of discount potential based upon a client’s supply chain. Many companies find that they can fully fund a broader procure-to-pay initiative with the savings from early-payment discount programs, and even have funds remaining for other initiatives as well.

What percent of suppliers can I expect to accept discount offers?

From our experience, top performers can expect to enroll and onboard between 18% to 22% of targeted suppliers into an early-payment discounting program.

© 2017 SAP SE or an SAP affiliate company. All rights reserved.

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What control do I have once the program is in place? Can we decide to stop pursuing early-payment discounts during the year?

You maintain complete control over the amount of cash to apply and suppliers to target for your discount program. You can start and stop a program at any time and set limits on the amount of cash you are willing to apply to a program.

How can I overcome resistance from our treasury group about the impact of discounts on our DPO?

Education is key, so you’ll want to engage your treasury team early on in a working capital management program discussion. The best approach is to combine an early-payment discount program with a payment-terms standardization and rationalization initiative. That’s where you get the best of both worlds: more early-payment discounts combined with the ability to maintain or extend DPO. That gets the attention of your treasurer. Because discounts are a form of risk-free returns, they compare very favorably with other potential uses of short-term cash.

How can we help suppliers with their cash flow if our focus is extending payment terms, not expanding discounts?

You can expand the capture of early-payment discounts and still extend DPO with our discounting capability. But if your focus is to limit cash use or not apply your own cash to a discount program, we also offer the supply chain finance capability. Here, a third-party funder will pay early and take the discount, while you pay the funder on the invoice due date. This helps you extend payment terms while providing your suppliers with the liquidity they need to run their business.

© 2017 SAP SE or an SAP affiliate company. All rights reserved.

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SUPPLIERS

What motivates suppliers to support a dynamic discount program?

Accelerating payment to suppliers helps to reduce their days sales outstanding and improve their cash flow. In addition, our discounting capability provides automated alerts and notifications to immediately inform suppliers of scheduled payments and available discount offers. Suppliers can view payment status from a supplier portal and accept discount offers every time or on an ad hoc basis. In addition, with our cash flow optimizer tool, suppliers can model early-payment opportunities and choose the most affordable discount offers to meet their cash flow needs. Suppliers can also initiate discount offers or make counteroffers as part of a collaborative cash management process.

Do suppliers have to change the way they invoice us today to implement early- payment discounting?

No. Your suppliers can continue to invoice as they always have. However, if a paper process is responsible for invoice processing delays that prevent capture of these discounts, you might consider electronic invoicing. Our discounting capability supports any invoicing option you choose, including e-invoicing through Ariba Network, use of our cloud-based SAP Ariba Invoice Management solution, third-party solutions for invoice processing, or even paper invoice processing.

Are suppliers required to accept early-payment discount offers?

No. Suppliers can agree up front to accept a discount on every payment. Other suppliers can choose to enroll in a dynamic discount program that allows them to accept or decline any discount offer. They can also make counteroffers, and, with your approval, they can initiate discount offers on approved invoices.

© 2017 SAP SE or an SAP affiliate company. All rights reserved.

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GENERAL FUNCTIONALITY

Do we need additional equipment or soft- ware to enable the discounting capability?

You will need the discounting capability of the SAP Ariba Payables solution.

How does the discounting capability link with e-invoicing?

The discounting capability, available for the SAP Ariba Payables solution, complements your e-invoicing solution and supplier enablement flight plans on Ariba Network. In cases where you fail to capture discounts because you can’t process your invoices fast enough to earn them, we offer the SAP Ariba Invoice Management solution. With it, you can automate invoice processing and speed invoice approval cycles from weeks or months to a few days – so you can capture all eligible discounts and not just a small percentage of them.

Why does Ariba Network use the supplier’s original tax invoice to create dynamic discounting credit memos?

This is to facilitate dynamic discounting in countries where tax authorities with VAT or similar indirect tax methods require suppliers to issue credit memos when an early-payment discount is granted after the issuance of the invoice. Ariba Network can issue dynamic discounting credit memos on the supplier’s behalf, so that buyers and suppliers can easily take advantage of early-payment discounts in countries that mandate credit memos. The supplier agreement to enroll in Ariba Network, the date found on the original tax invoice, and Ariba Network business rules applied to both the original invoice and subsequently to the credit memo give buyers, suppliers, and their respective tax advisors confidence that the content of a supplier-issued invoice will satisfy the legal requirements.

Learn more

For more information on the discounting capability, please visit us online.

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