Extending DPO and Getting € 1.7M Leveraging Payables Working Capital

Leveraging Payables Working Capital you can get three types of strategic goals:
1. Extension of the DPO
2. Increase the return on cash
3. Reduction of financial charges on bank credit lines

You can get those objectives basically working on the Payment Terms balancing the DPO extension and the Early Payment Discount effects.

The first step is to rationalize and standardize the payment terms.

Then, you can extend the DPO.

Typically, at the beginning is possible to attack a quarter of spend.

The next step is to leverage a Dynamic Discounting tool to enable early payments negotiations.

Typically, this is viable on 10% of the spend

The expected benefits are:

• From 1 to 4 days of extension of the DPO
• 1.5% average discount on 10% of spending on an annual basis with returns of between 18% and 36%
• 2% of interest earned from 20 days of spend extended based on a portion of spend of generally 25%

The bottom line of these benefits, assuming 1 billion euro of spend, is:

• € 5M per day extended
• € 1.5M from Dynamic Discounting
• € 274k by the reduction in financial charges