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Early Payment Discounts

An international gas and oil company was losing thousands of dollars in vendor invoice discounts for early payment. These discounts were being missed through inefficient processing, which caused delays in the paying of vendor invoices. The entire payment system therefore required upgrading and streamlining.

Baseline performance before any changes took place indicated that the company was only able to pay 67% of invoices eligible for early payment discount, thus missing out on $125,000 in discounts per month. A Deployed Process Flow Diagram then identified bottlenecks in the payment system, with over 20 possible root causes identified. However, the major problem was invoices being delayed at the eApproval stage (eApproval was an app for accelerating the process of approving or rejecting purchase orders).

New processes were introduced to address this problem; in addition, the service level agreement within the Standard Operating Procedure (SOP) was reduced to one day for registering of invoices and two days for payment of invoices to be authorised for release. This resulted in dramatic improvements to the level of discounts received, reducing missed opportunities from $125,000 per month to an average of just $25,000 per month.