How JetBlue is Reaping the Rewards of Dynamic Discounting 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 s).  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  JetBlue Chose a Provider Who –  Does not charge a License Fee.  Whose discounting is standard with the AP Automation Platform.  Does not charge for Standard Discounts.  Has reasonable “discount share” on auto-slope and dynamic discounts.  Other Providers We Did Not Choose -  Charged Hundreds of Thousands of dollars in License Fees.  Charged for standard discounts.  Expensive discount share on all discounts.  Had no escalation s and weak workflow There are a few providers in the AP Automation marketplace that offer a version of Dynamic Discounting. An organization needs to determine what is important to them and find the best fit for their needs. When evaluating the particular needs of our organization, there were some important items that factored into our decision:

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

How JetBlue Utilizes it 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 InvoiceWorks ensured that the system knows which suppliers can 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.

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.

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