"What percentage of a typical company's creditors offer a discount for early payment? What are the average terms offered? Do most companies take full advantage of the discounts offered? Do most companies try to get their creditors to accept discounts for early payment? Would CFOs rather pay their bills later than earlier? What percentage of a company's vendors are considered small businesses? Do companies outsource that portion of their payables which deals with early pay, vendor discounts?"
The answer to these questions is "it depends." The number of creditors that a company can expect to offer a discount payment terms program will vary by industry and type of vendor. TAPN's survey on Early Payment Discounts provides data on percent of vendors offering discounts.
According to the study, terms that appear most often with vendor discount programs in the U.S. are 2% (78 percent) and 10 days (90 percent), but see the study.
Whether a company takes advantage of discounts depends on each company's particular situation. If a company has tight cash flow, then it may not have the financial flexibility to take advantage of discounts and may be in the mode of trying to stretch out its payments as long as possible. Other companies insist on taking discounts at every opportunity where it makes economic sense so that the return achieved from the discounts exceeds the return which could be received from using the funds in another resource.
CFOs will look at analysis that offers what the trade off is between early payment versus hanging onto the money until it must be paid.
Companies that have largely manual payables processes generally have a much more difficult time taking advantage of discounts, because it requires an efficient processing operation to go from invoice received to payment in the allotted early pay period.
Small business is defined differently by companies and we have not run across a common standard that would indicate that any company with a certain characteristic would be classified as a small business. Wall Street defines a small business differently than the government and differently from within industries. A good practice is to document what your company does consider a small business. The Small Business Administration can be a good resource for this type of information.
In regard to outsourcing, we are aware of companies that outsource parts of their accounts payable functions and some businesses are getting to where they are considering outsourcing the whole function. Some common outsourced functions are freight payables, sales and use tax payables, disbursement processing (by banks and other institutions), utility bills and consolidation, and travel & expense bills to name a few areas. These functions may encompass vendors who offer discounts.