Comptroller Fiscal Year Memo Letter Head

To:         Chief Fiscal Officers and MMARS Liaisons

From:     Martin J. Benison, Comptroller

Date:       November 13, 2012

Re:         Prompt Payment Discount Statistics Summary for FY2012 – First Quarter FY2013  

Comptroller Memo FY#2013-10


Executive Summary

The purpose of this memo is to update CFOs and MMARS Liaisons on departments’ utilization of the Commonwealth’s Prompt Payment Discount (PPD) program in FY2012 and the first quarter of FY2013.  For the first quarter of FY13 an additional $2,074,250 of PPD were taken by over 110 departments.  Prompt payment discount savings are now approaching $8 million annually!  Prompt payment discounts have and will continue to help maximize your department’s line item spending power.

 Annual Prompt Payment Discount (PPD) Opportunities

 

FY08

FY09

FY10

FY11

FY12

FY13                 QTR 1 only

Discounts Taken

$3,373,000

$4,099,000

$4,655,000

$5,526,000

$6,973,832

$2,074,250

Discounts Not Taken

$1,824,000

$1,645,000

$1,519,000

$1,972,000

$1,874,287

$620,429

Prompt payment discount savings are now approaching $8 million annually.  The success of this program continues into fiscal year 2013 and there continue to be opportunities to expand your usage.

The Commonwealth’s Prompt Payment Discount Program (PPD) has always resulted in savings both to our vendors and to department budgets.  During the first quarter of FY2013, the Commonwealth continued to favorably increase its opportunities for discount savings.

Vendors who are not offering discounts should be approached and asked to enroll in the PPD Program now.  With a tight budget and a tight credit market, PPD is a sensible way for departments to save money and to provide a timely cash flow to their vendors.  Even with this success, in FY2012, there were almost $1.9 million of prompt payment discounts available, recorded on encumbrances, but not taken; a lost opportunity.

Departments can increase PPD dollars as well by reviewing the “Discounts Not Taken Report” and instructing Accounts Payable staff to process payments consistent with discount terms.  Realizing the “Discounts Not Taken” would mean further savings to your appropriations, CTR continues to assist department CFOs by identifying additional contracts that could potentially offer prompt payment discounts.  In addition to the listing of Active MAs that offer prompt payment discounts that is available on the Contracts page of the CTR Web Portal, and in order to provide departments a quick and easy way to take advantage of more discounts, CTR posts a list of vendors that offer discounts on department contracts on our Payments page.  The list, refreshed daily, is derived from department encumbrances in final status which offer prompt payment discounts in FY2013.

Successful discount implementation needs the full support and participation of each department’s payment, contracting, and vender management staff.  Departments should verify that the discount terms entered on encumbrances are accurate in both the vendor and commodity sections.  Departments processing invoices in a timely manner should assure that the discounts offered are taken automatically.

To analyze and report FY2013 activity, the following attachments offer department specific and summary data.

Attachment A xls format of FY2013-10-attch
file size 2MB has 2 tabs with 2 reports each sorted by department, for FY2012 and the first quarter of FY2013.  These reports show discounts taken, partial discounts taken and discounts missed due to payments scheduled after the discount terms expired.   Capturing future discounts is within each department’s control.

  Attachment B xls format of FY2013-10-attch
file size 2MB has 2 tabs with the statewide summary discount report for FY2012, as well as the first quarter of FY2013.

To assist departments now for FY2013 business, we have prepared the query of encumbrance activity to include all departments’ FY2013 encumbrances in those object codes that generate discount savings.

Attachment C xls format of FY2013-10-attch
file size 2MB is a report that summarizes by department the FY2013 encumbrances on MMARS that are eligible for discounts based on the object code used.   The charts below summarize all departments.

FY2013 Encumbrances With and Without Discount

Dept.

Total Dollars Encumbered Eligible for Discount

Dollars Encumbered with Discount

Dollars Encumbered without Discount

% of total dollars with Discount

% of total dollars without Discount

All 

$1,678,247,249.34

$277,729,460.91

$1,400,517,788.43

16.5%

83.5%

Dept

Count Total Encumbrances Eligible for Discount

Count Encumbered with Discount

Count Encumbered with no Discount

% of encumbrances with Discount

% of encumbrances without Discount

All

25,554

11,717

13,837

45.9%

54.1%

As illustrated in the charts above, the first quarter of FY2013 activity reflects a high volume, in dollars and count, of active encumbrances/contracts that do not offer discounts.

Attachment D xls format of FY2013-10-attch
file size 2MB lists encumbrance transactions “with discount” offered on one tab and those encumbrances in selected object codes offering “no discount” on the second tab. It is sorted by department, transaction, and object code; it includes the discount percentage, commodity line number, accounting line number, and line amount for FY2013.  Records can be filtered by department.  Those encumbrances in the “no discount” tab should be reviewed with the vendor for the addition of prompt payment discount terms.  It is crucial that department CFOs and contract managers review these contracts and take the initiative to capture lost opportunities by encouraging the vendors to offer a mutually agreeable discount rate.

The Prompt Payment Discount Policy states that “Even if a Department has not included the Prompt Payment Discount Form as part of the RFR process, or for contracts when a procurement is not required, the Department is strongly encouraged to have a Contractor complete a Prompt Payment Discount Form during the contract execution, renewal or amendment process to ensure that Prompt Payment Discounts are available to departments to the maximum extent possible.”

Through queries, CTR has identified eligible contracts with many vendors who offer discounts on other department contracts.  This information is forwarded to department fiscal staff to assist them in requesting discounts directly from vendors.  It is crucial that CFOs and Contract Managers review the discounts missed report and instruct relevant staff to ensure that payments are processed on a timely basis so that your department can receive the maximum discount offered under the contract. 

To assist with department analysis, CTR has provided starter queries that departments can run in the Commonwealth Information Warehouse (CIW) to identify payments made with discount terms offered.  These Discount Starter Query instructions are available here.  

Please review your discount statistics and, if you have any questions, contact Michael Weld Eyob at (617) 973-2310.

Enc: 

Attachment A xls format of FY2013-10-attch
file size 2MB - FY2012 Annual and FY2013 First Quarter Department Discount Summary – Taken, Partial Taken, No Discount Taken
Attachment B xls format of FY2013-10-attch
file size 2MB - FY2012 Commonwealth Discount Summary & First Quarter, FY2013
Attachment C xls format of FY2013-07 Attch C
 FY2013 Encumbrance and Discount Opportunities Summary
Attachment D xls format of FY2013-10-attch
file size 2MB  - FY2013 Encumbrance Listing

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