Sramana Mitra: How do you do that? How do you take an internal operation and turn it from a cost to profit center? What did you that was innovative there?
Nilay Banker: That’s a great question. It all starts with making sure that you can achieve process efficiency. Process efficiency, in this case, is how long does it take for you to process an invoice that a supplier sends you and eventually make the payment to the supplier. We started off with that as the core of the solution – helping automate that business process and getting it down from 20 to 25 days to 2 to 3 days.
But then what do you do with that? You got your invoice processed in two or three days. You still have human capital who are employed to process those invoices. Since now you have got your invoice processed quicker, it opens up a huge opportunity to making early payments to suppliers. In the finance world, there are payment terms. As a supplier, when I send an invoice to the customer, the customer is going to make you a payment within 30 to 45 days.
With early payment, and if I can get my invoices processes fast enough, I can turn around payments to my suppliers within two or three days. There are so many suppliers who strapped for cash who will pay you a discount because you paid them early. That was the simple concept. Going back to the core, you cannot take advantage of early payment discounts unless you can get your invoices processed faster.
Sramana Mitra: How does your system tackle this? Is it across the board early payment or do you offer certain processes such that they can use those processes to negotiate with certain vendors and then once those discounts are in place, you implement the early payment. Is there a selective process? How does this work?
Nilay Banker: That’s a great question. As a customer, I have a large supplier base. I may have tens of thousands of suppliers. The key is to identify suppliers who will participate in this discount management program because not every supplier is going to take advantage of it. Theoretically, every single supplier would benefit from early payment discount. Still not every supplier is going to participate in the program.
The key is to identify suppliers who have the highest propensity to give you discounts in return for early payments. It’s more of an art to figure out what percentage of supplier base, how you identify that, and how you effectively communicate with them and onboard them to the discount management program.
Sramana Mitra: Is that something that your system manages?
Nilay Banker: Yes. Our system manages that process. We have a proprietary way of identifying those suppliers. If you end up targeting the wrong suppliers, your program isn’t going to be successful. The other thing that we are doing is we, as a solution provider, take the risk and responsibility of making our customers successful, which means if our customer benefits from discount, only then do we charge them for the discount management program.
It’s a gain share model. The onus is on us to make our customers successful whether it be through on-boarding hundreds of suppliers or thousands of suppliers and in the end getting millions of dollars worth of discount savings. We charge them a percentage of those discount savings.
Sramana Mitra: Very interesting.