It’s estimated that 79% of all invoices are still paper in the accounts payable departments and manual checks are issued 63% of the time. But this paper- and labor-intensive process often prevents hospitals and health systems from attaining hundreds of thousands of dollars in contracted prepayment discounts.
Most finance leaders are aware that they are missing out on hundreds of thousands of dollars in savings, so to offset that, they have taken a cash management strategy that involves trying to capture interest off of the float—though it typically yields a paltry 1% return.
However, when a hospital pays invoices early, it reaps even greater returns. Consider, for example, an early-payment discount on a 2/10 net 30, where the hospital can take a 2% discount by paying before the 10th of the month on a bill due the 30th: It will earn an annualized percentage of 36.5% for the hospital, significantly higher than the interest on float.
The challenge, however, doesn’t come from a desire to actualize these early-payment discounts; rather, it is how to get the A/P department to move swiftly enough to get the payments made in time. With thousands of vendors and invoices, it may seem all but impossible to hit all the varying contracted prepayment deadlines. Not so, however: The solution is as simple as a credit card.