Dynamic Payables Discounting is a process which allows buyers and sellers of commercial goods and services to dynamically change the payment terms — such as net 30 — to accelerated payment based on a sliding discount scale. Dynamic Payables Discounting is “Dynamic” in one or more ways.
Dynamic Payables Discounting:
- Allows supplier to control payment timing
- Discount amount is calculated dynamically based on the number of days remaining until the due date.
- Discounts do not need to be negotiated in advance, rather can be taken dynamically as working capital needs dictate.
- Trading parties can tap into an alternative source of working capital with the use of third party creditors whom pay early on behalf of the buyer.
What are the benefits of Dynamic Payables Discounting?
Dynamic discounting offers suppliers the flexibility of discounting some or all of their receivables, eliminating the need to utilize high-cost financing options like factoring or asset-based lending to obtain cash liquidity and stronger balance sheet positions. It also mitigates the uncertainty surrounding the timing and amount of payments, allowing for superior cash flow forecasting capabilities. On the other hand, supplier financing can enable buyers to extend their payment terms with the injection of third party capital. These benefits accrue without adversely affecting trading partner relations. And interestingly, dynamic discounting isbased on a buyer’s credit rating instead of being pegged to the supplier’s risk, further strengthening buyer-supplier relationships.
Dynamic Payables Discounting is closely related to Supply Chain Finance or Financial Supply Chain Automation tools which allow corporate financial managers to collaborate with their suppliers to improve their working capital efficiency. PayStream Advisors is developing a vendor analysis and buyer’s guide for professionals who are seeking information regarding Supply Chain Finance and Dynamic Discounting (SCF) solutions. The report is designed to help corporate financial managers to leverage the use of dynamic payment terms to optimize their working capital requirements. The forthcoming report will provide valuable insights into emerging trends in the supply chain finance and dynamic discounting marketplace and focus exclusively on solution providers that deliver automation options to meet organizations’ needs around alternatives for enhancement of their management of trade payables. This report, which will be published in the third quarter of 2007, is intended to help Fortune 1000 Treasury, Accounts Payable, Purchasing, and IT buyers make vendor and technology selection decisions as they evaluate new options to optimize their working capital.This report will focus on leading solution providers who have strong capabilities and product strategies to meet the needs of medium and large corporate accounts payable automation and treasury enhancement efforts.
