Invoice discounting is a great way for organizations to improve cash management while maintaining strong vendor relationships. For many companies, it may be the key to surviving the current economic uncertainty.

Traditional invoice discounts, which are usually proposed by the seller, involve paying an invoice early (usually within ten days) for a slight discount. The most common discount terms are 2/10 net 30, meaning the buyer receives a 10 percent discount for paying on the tenth day.

The rise in AP automation technologies is shifting the way payables departments think about invoice discounts. In a paper environment, discounts are difficult to capture because it's hard to get an invoice approved in ten days, let alone pay it. For many organizations, discounts were a rare treat.

Thanks to procure-to-pay technologies, buyers can approve invoices in three days or less. Also, a lot of P2P solutions let buyers take control of the discounting process. Rather than waiting on suppliers to offer a discount, buyers can propose them themselves.

Many buyer-proposed discounts are dynamic, meaning that rather than disappear after the payment date, they decrease slightly each day they are not paid. For example, the buyer may receive a 2 percent discount for paying in ten days, a 1 percent discount for paying in 20 days, or a 0.1 percent discount for paying on day 29.

The benefits of taking invoice discounts extend beyond simply reducing expenses. When managed properly, an invoice discounting program can help shield your organization against a possible economic recession, as having extra cash on hand is always a good thing. In addition, paying vendors early will usually improve supplier relationships. Just be sure not to strong arm them into taking the discount, as that could have the opposite effect.

For more on discounting, check out the following article printed in Supply & Demand-Chain Executive, "Emerging Payment and Discount Paradigms in the Supply Chain". Also read the "Managing Your Cash Flow", published at allmediascotland.com, for information on cash management, including how to integrate a discount management plan.