How JetBlue Utilizes Early Pay / Dynamic Discounting to Gain Financial Flexibility

Joni Geurts - JetBlue Paul Kerins - iPayables

What is Dynamic Discounting?

Traditional Terms Determined with supplier during contract negotiations One static net due date One static discount due date

Always Take Discount Buyer Pay after discount due date Take full discount anyway

Traditional Terms with auto-sloping Use traditional term Pay after discount due date Take pro-rated discount

Dynamic Discounting Customer offers discount to supplier Supplier selects payment date Discount calculated by customer APR

Potential Hurdles

External Factors to Consider: Internal Factors to Consider:

Some providers charge additional licensing fees to use it.

Dynamic Discounting not as successful with paper invoicing.

Some providers have limited early pay functionality (no auto-sloping, vacation re-route, escalation emails).

Some providers charge discount share on standard terms.

Most providers charge extra for supplier adoption.

Must have working capital. Must have the approval from the Treasury

department. Must understand the cost of capital to

determine the appropriate APR. Possible Wall Street implications to

increasing working capital. Need to inform / encourage suppliers to

use the discounting feature. Making a business case.

JetBlue Before Implementation Prior metrics: Cash Discount $35k (2007)

DPO Averaged 26.2 Days

Processing Issues: Limited visibility at a Vendor Level

Impacted AP team as well as Procurement

There was a lack of awareness in procurement of related vendors, where JetBlue was receiving 2% / 3% cash discounts from only one small division of a public company. Leveraging these supplier relationships could yield incremental cash discounts (~$500K).

Due to vendor and internal delays, invoices were not available on a timely basis to capture cash discounts.

Existing DPO was 26.2 (many companies have moved to net 45, net 60 or in certain industrial companies, net 90 days).

JetBlue’s Success with Automation & Discounting

Accounts Payable department has generated substantial revenue.

Savings generated has offset AP Automation costs.

Treasury can change APR when cash is needed.

Annual Disbursements of $2 Billion. SAP; Integrated with InvoiceWorks, TRAX

(FAA tracking program for all A/C parts and repairs), and FirstStrike.

Only 11 crewmembers in Accounts Payable, divided by airports, region and Aircraft related expenses.

Invoice processing time down to just 7 days for internal approvals.

JetBlue’s Perspective: Supplier Side:

Suppliers gain financial flexibility.

Cash flow is improved / suppliers get paid faster.

Invoices get processed faster.

6,600 active vendors.

12,000 invoices per month are entered into our e-invoicing system.

Standard Discounts were not a priority for procurement (only 2.6% of vendors offered a standard discount).

Solutions in the Market Place

iPayables – Discounting is standard with InvoiceWorks No License Fee No charge for Standard Discounts Reasonable “discount share” on auto-slope and dynamic discounts

Provider 2 Hundreds of thousands in License Fees Charged for Standard Discounts Expensive discount share on all discounts

Provider 3 License Fee Charged for Standard Discounts No Escalation emails, Weak workflow

Currently being offered by:

Invoice Submitted in InvoiceWorks

Invoice Approved or Matched Invoice Sent to SAP Invoice Status Sent

Back to iPayablesSupplier Offered

Early Pay via Email

Supplier Ops forEarly Pay Online

Discount Credit Memo Routed to AP

AP Modifies the Terms on the

Original Invoices to Pay Now

AP Approves Discount Credit

Memo

Discount Credit Memo Transmitted

to SAP

Discount Credit Memo and Original

Invoice Pay together

Supplier Flagged in InvoiceWorks as

eligible for Early Pay

Discount Credit Memo Created in

InvoiceWorks Automatically with

Default Data

Discount Credit Memo Routed to AP

AP Modifies the Terms on the

Original Invoices to Pay Now in SAP

AP Approves Discount Credit

Memo

Discount Credit Memo Transmitted

to SAP

How JetBlue Utilizes it

At JetBlue, we had specific workflow needs that led to the following configuration:

How JetBlue Utilizes it

Invoice Submitted in InvoiceWorks

Invoice Approved or Matched Invoice Sent to SAP Invoice Status Sent

Back to iPayablesSupplier Offered

Early Pay via Email

Supplier Flagged in InvoiceWorks as

eligible for Early Pay

Pre-Offering Stage

The first portion of the process shows how JetBlue makes sure Dynamic Discounting was only offered to suppliers we selected. The payables system’s connections to iPayables InvoiceWorks ensured that the iPayables system knew which suppliers could participate. JetBlue decided against showing the supplier the Dynamic Discounting options up front, so the option did not appear at the time of submission, but only after approval and transmission.

Supplier Ops forEarly Pay Online

Discount Credit Memo Routed to AP

AP Modifies the Terms on the

Original Invoices to Pay Now

AP Approves Discount Credit

Memo

Discount Credit Memo Transmitted

to SAP

Discount Credit Memo and Original

Invoice Pay together

Discount Credit Memo Created in

InvoiceWorks Automatically with

Default Data

Discount Credit Memo Routed to AP

AP Modifies the Terms on the

Original Invoices to Pay Now in SAP

AP Approves Discount Credit

Memo

Discount Credit Memo Transmitted

to SAP

How JetBlue Utilizes it

Post-offering Stage

In this part of the process, after the supplier has opted for early payment, a discount credit is created. Not every company is going to want to do this with credit memos, the other configuration option is to adjust the terms of the invoice so the discount is included in the invoice itself. The end result is the same, the invoice is discounted and the invoice and discount are recorded with the appropriate coding in the payables system.

Questions?