How to Cut Costs Without the Cutbacks
For the past two years corporations have been in a constant battle to maintain profitable margins while combating rising labor costs, inflation and supply chain disruptions.
- Labor costs resulting from shortages and the need to retain talent.
- High inflation resulting from global government spending to sustain economies in times of pandemic distress impacting a rise in consumer spending with the inability of companies to keep up with the demand.
- Supply chain disruptions caused by a combination of pandemic shutdowns, geopolitical uncertainty, strikes and lack of resources to keep up with consumer demand.
- Currency volatility from geopolitical uncertainty with billions of dollars of volatility impacting corporate income statements.
These factors led the Fed to raise interest rates at the fastest pace in history, further complicating corporate cost cutting measures. A stable, well-rated corporation’s cost of capital skyrocketed from less than 1% to greater than 6% in a very short period. This additional area of rising costs has complicated the levers corporations have to lower costs while combating all the other challenges presented.
When fixed costs are going up and there are very limited opportunities to cut variable costs with significant impact, where do corporations turn? Many organizations are turning to Dynamic Discounting programs as a means of reducing the cost of goods sold. The form utilized with the biggest impact to reducing costs is not the standard payment term discounts. The strategic lever being pulled is a bid / ask Dynamic Discounting program offering a significant return and improvement in gross margins. A well run Dynamic Discounting program can yield a range from 8% to 12% in reduced cost of goods sold thus improving gross margins and income statement performance.
The Holy Grail for Businesses
In times of high interest rates, tightening financial markets and economic uncertainty, a Dynamic Discounting program is a win for corporations as well as their supplier / vendor base of business partners. It can be powerful enough to become the Holy Grail for reducing the cost of goods sold and sustaining business partners critical to your business.
Table: A Dynamic Discounting program is a win-win for corporations as well as their suppliers/vendors
|Benefits for Companies||Benefits for Suppliers/Vendors|
The Key to a Successful Dynamic Discounting Program
The key to success is the ability to reduce the time it takes to approve invoices, visibility into liquidity and being able to conduct on demand analysis on impact as well as the appropriate discount capture for the optimal margin impact.
Best-of-breed technology provides the ability to optimize the impact of a Dynamic Discounting program. The right technology will have a one-stop-shop capability for invoice workflow for both the buyer and the seller, liquidity visibility to ensure capacity and impact and real-time discount rate insights generating the optimal gross margin improvements. These types of programs face challenges when disparately managed with multiple tool sets resulting in the inability to maximize discount capture and ensure the maximum approved invoices available to discount.
Especially in today’s interest rate environment where it is uncertain how long rates will stay elevated, Dynamic Discounting provides a means for corporations to significantly cut costs in their income statement without impacting overhead and still controlling cost of capital. The opportunity to reduce the cost of goods sold by more than 8% is available to you with a Dynamic Discounting program run on an enterprise liquidity management platform that maximizes visibility and streamlines ERP to supplier integration.