Are we dealing with six of one and half a dozen of the other? After reading The Art of the Play, I have to wonder.
They are different in that you get one right away and you get the other later, and they are different in that one is just a reduction in spend and the other can be treated as an income stream, if the CFO so desires, but in the end they both have the same effect on the bottom line — less spend.
So why would an organization favour one over the other when the big difference is capturing the savings now versus capturing the savings later? If the organization was limited in cash and was trying to maximize savings, then capturing the savings right away would definitely make more sense, but if the organization was flush with cash and the supplier offered tiered rebates that improved with volume, then the organization might want to wait until later. Otherwise, the doctor can’t see much of a difference.
However, one area where there is a big difference is paying for a platform vs. paying for a service, especially for a big company. For example, the Oxygen Finance model described in the article is to provide you with a service where you pay up to 50% of the discount or rebate captured by transaction. While this is a good deal for a mid-sized company that might not have the up-front cash required to implement the end-to-end e-Procurement solution required to effectively take advantage of discounts and rebates offered by suppliers for quick payments, this can be a very expensive solution for a large enterprise. Consider a company that spends 250 Million a year, the low-end of the market for Oxygen Finance. If the average rebate is 1.5%, and you give one third of that up to the service provider, then the organization is paying 1.25 M a year for the solution, and only achieving a 2X ROI.
A company of this size can acquire a SCF solution for a fraction of this cost and realize a much larger ROI.
When you dive in, you realize that there are only three reasons most companies can’t create or take advantage of most of the early payment discount and rebate opportunities available to them:
- Invoices aren’t getting in the system fast enough
because most of them are coming in as (e-)paper.
- Approved invoices aren’t getting to AP fast enough
because routings for approval take too long.
- Procurement doesn’t have the manpower to negotiate rebates on 100% of spend
because there are too many suppliers.
And while these were valid problems a few years ago, without (m)any real solutions (that an average organization could afford), today:
- An organization can acquire a SaaS end-to-end invoice automation framework, such as the one offered by Nipendo, that will convert all incoming invoices into one standard e-format for six figures.
- An organization can acquire a number of rules-based e-Procurement and invoice automation solutions (including Nipendo‘s) that will automatically approve and route all error-free invoices that match a PO or contract to the AP system and route those that require manual correction or approval to the right individual for online (e-mail) approval.
- An organization can see significant returns addressing only 80% of the spend which is typically with less than 20% of the supply base.
An organization that takes this approach can typically acquire a solution for (much) less than 500K a year, save 1.5% on 200 M of spend, and see a (minimum) 6X return, which is the return you should be looking for from an e-Procurement solution.
Maybe there’s another reason for a large enterprise to go transaction-fee SaaS for discount and rebate management, but if there is, the doctor ain’t seeing it — and he’s been covering SCF for years. As far as he is concerned, the sweet-spot for transaction-fee SaaS for discount and rebate management is the 50M to 250M range, because the implementation cost of the necessary end-to-end e-Procurement, invoice-Automation, and SCF solution isn’t that much cheaper for a mid-sized organization than for a Global 3000, and at less than 200M of addressable spend, the ROI multiplier starts to drop considerably.
Any differing opinions?