A large MNC was having its cash flow adversely impacted due to late payment of invoices which if paid early would have enabled the organization in availing the discount that is available on early payment. The discount lost was estimated to be US $1 million. A Six Sigma project was launched to unearth the reasons for late payment thereby enabling the company to benefit from the discount. The idea was to leverage from the discount given by vendors to optimize the cash flow.
 

The project team analyzed the discount lost data and unearthed the reasons for late payments. Some of the main root causes for late payments was late receipt of invoices, too short discount terms and late payment due to payment run issues in Oracle. Another key noticeable factor was that no distinction was made between high volume vendors and others and each one of them were giving paper invoices.
 

The team validated the root causes and set out to brainstorm the possible solutions for the identified root causes. One of the main solutions implemented along with its impacts was:

For high volume vendors the paper invoices were upgraded into Electronic Invoices and along with that process was put in place to ensure early receipt of paper invoices. The above solution helped in increase in no. of invoices received between 0-5 days category resulting in additional savings of apprx.US$50K for six months.
 

The project on completion yielded a total financial benefit on US$ 320k