What is dynamic discounting?
Dynamic discounting is a solution that gives buyers more flexibility to choose how and when to pay their suppliers in exchange for a lower price or discount for the goods and services purchased. The “dynamic” component refers to the option to provide discounts based on the dates of payment to suppliers. In most cases, the earlier the payment is made, the greater the discount.
Dynamic discounting enables buying organizations and their suppliers to initiate early-pay discounts on an invoice-by-invoice basis. This solution allows both parties to view invoices through a web-based platform and select approved invoices for early payment.
The main benefit of dynamic discounting is that the buyer can use their own balance sheet or excess cash to generate additional purchasing discounts. The seller benefits by reducing working capital and getting paid earlier.
What you should know about dynamic discounting
- It is different from traditional discounts – Dynamic discounts are calculated as a function of the time of payment. This eliminates the issues of static terms, such as 2%, 15, Net 30, where the buyer is no longer entitled to a discount if the invoice approval takes more than 15 days.
- It is not the same as supply chain finance– These are two different solutions for financial supply chain management. The main difference is based on the funding. In dynamic discounting, the buyer finances its suppliers with early payment terms. In supply chain finance, also known as reverse factoring, the buyer uses third-party funders to finance early payment terms. Read more about the difference between dynamic discounting and supply chain finance here.
- It is not factoring – With our solutions, 100 percent of each invoice – minus a discount – is paid to the supplier on early payment terms.
How does PrimeRevenue’s dynamic discounting work?
The process flow is straightforward:
- The supplier sends invoices to the customer/buyer as usual without any change to the process.
- The buyer approves the invoices and uploads the invoice data, including payables and credit/debit memos eligible for discount negotiation, to the PrimeRevenue SCiSupplier platform.
- At any time, the supplier can log onto the web-based platform to view all approved invoices. The supplier then has the option to request early payment from the buyer or can wait until the original maturity date.
- If the supplier requests early payment, the full invoice value minus a small discount is paid electronically to the bank account of the supplier.
With PrimeRevenue’s OpenSCi product suite, setup and ongoing management of the program is simple and seamless, leveraging more than 10 years of experience. Contact us today to learn how we help organizations such as yours to implement dynamic discounting for their financial supply chain.
How much does dynamic discounting cost?
The buying organization does not pay any fees to set up a dynamic discounting program and benefit from improved margins. The supplier does not pay any fees to join the platform and only a small discount is deducted from its invoice when he chooses to get paid early.
Who benefits from dynamic discounting?
Dynamic discounting works for companies in various industries such as retail, food & beverage, electronics and many others. It benefits both trading partners.
Buying organizations reduce annual spend and improve their income statement by paying their suppliers early in exchange for a discount.
Suppliers benefit from the flexibility of discounting some or all of their receivables. Dynamic discounting provides a valuable alternative to high-cost factoring or asset-based lending for improving their working capital and cash flow position.
Dynamic discounting is a true win-win solution for both trading partners, strengthening the financial supply chain and improving relationships between buyers and suppliers.
The PrimeRevenue team works together with buying organizations and their suppliers to implement a dynamic discounting program that benefits both parties.
Contact us today to find out how we help you with your financial supply chain.