When we think about strengthening supply chains, the conversation often turns to financing. Dynamic discounting is one of those financing tools that benefits both sides of a transaction: buyers and suppliers. Under such programmes, buyers offer their suppliers early payment on invoices in exchange for discounts. For buyers, this can be a game changer. They benefit from reduced costs of goods sold (COGS) and improved cash flow management, which also boosts returns on investment (ROI). For suppliers, this means better cash flow at a lower cost, and the flexibility to choose which invoices to finance and when.
Beyond Cost Savings
Dynamic discounting is not just about buyer savings through discounts. While delayed payments can create issues in already-complex supply chains, dynamic discounting ensures that suppliers have access to capital when they need it—leading to a more secure and stable supply chain for buyers.
What is often overlooked is how dynamic discounting can impact supplier relationships. Trust is critical in every supply chain. When buyers offer dynamic discounting, it indicates that they value their suppliers. It fosters goodwill and builds trust. Suppliers are more likely to prioritise orders from these buyers, offer competitive terms, and collaborate on long-term goals.
Thoughtfully implemented, dynamic discounting can also support environmental, social, and governance (ESG) objectives, for example, by incentivising supplier compliance with a buyer’s ESG goals in exchange for early payments or lower discount rates. Suppliers, in turn, benefit from the additional liquidity to invest in greener practices.
The Role of Tech
Digital platforms have simplified dynamic discounting by integrating with existing systems, making it more efficient and transparent. Buyers and their suppliers can track invoices, payments, and available discounts in real time. Technology allows for faster transactions through a programmatic approach, optimizing outcomes at a reduced cost for both parties. Platforms like TASConnect integrate with the buyers’ enterprise resource planning (ERP) systems for seamless exchange of invoice information and payment instructions, automated transactions, and real-time discount rate calculation, allowing suppliers to accept early payment offers quickly.
A Balanced Approach
While dynamic discounting offers several benefits, suppliers risk becoming too reliant on early payments for liquidity. This can lead to problems if there’s a downturn in demand or unexpected financial challenges. Buyers also need to keep an eye on early payments, so it does not strain their own cash flow or impact their ability to make other investments. As with any financing program, dynamic discounting requires a balanced approach. Buyers and suppliers must carefully assess their financial situation to ensure they are not taking on unnecessary risk. Dynamic discounting can be a win-win for all. And as always, regular assessments help ensure that the benefits are maximised.
Kar-Lyn Tan is the head of Product and Platform at TASConnect. Having led large mission-driven teams at several major multinational banks and a corporate-backed venture, she is committed to solving customer problems through innovative supply chain and lending products.
