- SAP Managed Tags:
It’s usually a pretty clear division. Vendors want to get paid immediately for their goods and services. Buyers prefer to keep the cash in their own pockets – earning interest on the money for as long as possible.
This difference in perspective has often resulted in a tug of war over payment that pits vendor against buyer and small companies against much larger ones.
It can be a classic David-and-Goliath struggle. But it doesn’t have to be.
Net 30, Net 75, Net Never
Here’s a case in point. Mediafly, a Chicago-based technology company, sells cloud solutions that help customers distribute all types of mixed media content across their organizations. It’s awesome stuff, like technology that lets folks in TV and movie studios share dailies, rough cuts, and pilot projects with one another using their iPads and smartphones.
Mediafly took its first flight out into the business world back in 2006. The company is a relative newcomer, but it targets its services to some very established Fortune 1000 customers. This sounds like the perfect setup for a one-sided battle over getting paid.
In fact, Mediafly’s COO and CFO John Evarts describes the payment options a smaller vendor like Mediafly could expect from such large buyers: “Deliver the services I require now, and I’ll pay you for it later (Net 30); much, much later (Net 75); or much, much, much later (Net Never).”
The Future of Business is Collaboration
But the future of business lies in greater collaboration, not less. Collaborative technology such as electronic invoicing already exists that can simplify the procurement process by virtually eliminating the time required to move an invoice through a global company. So why not take fuller advantage of these networked business relationships to make commerce more profitable for all?
Mediafly did. It was able to shorten payment periods with one of its largest customers – a major entertainment conglomerate – by using dynamic discounting to offer a pricing discount in exchange for early payment.
A Win-Win Situation
The business value of getting this cash early, and without the expense of bank financing, far outweighed the cost of giving the discount. Faster access to capital let Mediafly add new staff in order to release a product ahead of schedule. And the improved cash flow continues to help fund new innovation and the development of what Mediafly describes as, “technology that combines geek with chic.”
You could say that Mediafly is a modern-day David, using its wits to get the better of a more powerful adversary. But in this collaborative business model, Mediafly’s Fortune 1000 customers aren’t exactly taking a hard rock to the forehead.
Conventional wisdom would tell you that payment terms of net 30 or net 60 days are an opportunity for large buyers to make money on their cash reserves. But in times of historically low interest rates – like now – the potential return on an interest-bearing account can be minimal. An attractive discount can represent a far better investment, and on-time payments remove the risk of late payment penalties.
And there’s at least one more advantage to this symbiotic business arrangement. The buyer is essentially investing in the financial health and growth of the vendor – a company that the buyer depends on for the products and services vital to its own business.
So what’s the best way to emerge victorious from the traditional vendor payment wars? It just might be executing a battle plan where both parties come out winners.
For more about Mediafly, please check out this customer testimonial video.
By harnessing the power of technology, SAP is determined to overcome complexity in business, our jobs, and our lives. To learn more about how SAP helps companies Run Simple, please click here.
Please join me on Twitter at @JohnGWard3.