by Drew Hofler, Senior Manager of Financial Solutions, Ariba
Today’s uncertain economy and tight credit markets make cash management tougher than ever. Most banks refuse to lend to smaller, younger companies, no matter how solid their bottom line appears. Even if you can get a loan or credit line, you may be reluctant to pay high interest rates or take on debt. Yet as more and more buyers lengthen their payment terms from weeks to months, you can find yourself scrambling to muster the cash you need—not only to cover payroll and expenses, but also to grow your business.
If this sounds familiar, take heart: using e-commerce to manage your order-to-payment cycle can help turn your cash woes into business rewards. And Ariba offers several great ways to help you do it.
The Ariba Advantage: Solid Cash Management Benefits for Your Business
In the past two years, a rapidly growing number of sellers have begun using Ariba to better manage their cash flow, enabling them to:
- Get paid faster, with 1,000+ sellers accelerating payments on over 300 million USD in 2012
- Obtain clear visibility into payment status and gain greater control over when customers pay
- Plan spending and investments more effectively
- Gain needed cash to hire extra workers, buy new equipment, and expand business scope
As Easy as 1, 2, 3
The good news is that it’s easy for you to obtain the same results. Below are three simple steps you can take to dramatically improve your cash management capabilities.
Send your invoices through the Ariba® Network. By invoicing through Ariba, you can gain immediate visibility into the status of all your receivables by simply looking at the scheduled payment tab in your inbox. (Even if you don’t send your invoices electronically, your customers can still provide information through Ariba about which invoices will be paid when.) Automated invoicing streamlines the submission and approval process, accelerating customer payments. Any problems that arise are highlighted as well, enabling you to resolve issues quickly and avoid payment delays.
The result? You have all the information you need for accurate forecast management, eliminating guesswork about when checks might arrive and the need to call customers to track down missing payments.
Take advantage of online discounting. Buyer adoption of Ariba’s Discount Professional™ solution has increased almost 300 percent since 2010. If a customer asks you to participate, be sure to say yes. If they haven’t yet done so, you can proactively encourage them to offer it to you. This will let you use online discounting capabilities, where you receive early payment on approved invoices in exchange for offering customers a discount.
Discount rates and payment terms can be set up through Ariba in different ways. If your customer agrees, you can create standing early payment terms that apply to every invoice you send, such as “1/10 net 30” (in which your customer gets a 1 percent discount for paying within 10 days of the invoice date, or else pays the full amount in 30 days). Dynamic discounting can be initiated by you or your customer on an ad hoc basis for specific invoices as the need arises, with either one of you suggesting discount terms based on early payment.
Through online discounting, you benefit by getting the cash you need, when you need it—at a much lower rate than is available through other channels. Your customers gain value as well, since they earn an immediate and better return on their capital than they would by simply parking it in traditional, low-return liquidity vehicles. And because the entire process is automated, activating these online features takes only minutes, enabling you to get necessary cash at the click of a button.
Accessing Cash Fast to Drive Revenue Growth
Chicago content management and distribution company Mediafly uses Ariba dynamic discounting to work around the high cost of capital typical for startups today. “For a few basis points, we can get quicker access to the capital we need to hire developers and get to the next set of features in our products, which accelerates revenue and ultimately generates cash,” says John Evarts, Mediafly’s chief financial officer. Just as important, when customers commit to a payment date, they can’t let it slide, so the company doesn’t have to waste time chasing after payments that don’t appear on time.
Use Ariba Receivables Financing. Even if your customers don’t offer online discounting, you can still get early access to cash at reasonable rates through Ariba Receivables Financing. This option, powered by The Receivables Exchange (TRE), lets you sell your receivables in online auctions to a global network of capital providers who bid within parameters you set. You get a cash advance within 24 hours after the auction ends, and any remaining balance comes to you once your customer remits payment. Recent adjustments to the financing techniques and requirements have made this option both more affordable and easier to qualify for, so be sure to assess its viability for your business.
Cashing in on Ariba Receivables Financing
For Mason-Grey Corporation, an Atlanta-based engineering services company, Ariba Receivables Financing has proved instrumental in providing the cash needed to capture new business. “It was absolutely maddening to see opportunities on the horizon, have relationships with banks, and have them repeatedly say no,” says company president Joe Reini. Through TRE the company was able to obtain funds quickly, improving cash flow to the point where 20 new staffers could come on board. As a result, the company’s revenue has doubled in the past four years.
A Collaborative Resource for Competitive Advantage
By automating the collaborative process, Ariba online cash management makes it easy for you to negotiate win-win agreements with your customers that help strengthen your relationships. Once you gain expertise with cash management tools, you can leverage your experience by asking other customers to use them with you as well. You can also help educate less knowledgeable buyers about the benefits these solutions
provide, strengthening your credibility as an e-savvy seller able to add value to their organization.