Dynamic Discounting is a buyer led solution that allows sellers to receive early payment on a buyer’s outstanding invoices at a discount to the invoice value. The discount applied is ‘dynamically’ calculated based on the number of days settlement occurs prior to the original invoice due date. That is, the earlier an invoice is paid the larger the early payment discount that is applied. A technology platform may be engaged to facilitate both the early payment requests from suppliers and the discount calculations. Upon early payment to the supplier, the buyer extinguishes the payables on its balance sheet.
The buyer funds the early payment to the sellers using their own funds, potentially generating higher yields on excess cash. This is unlike Payables Finance or Corporate Payment Undertaking, where sellers in the buyer’s supply chain are able to access liquidity provided by Banks, Funds, or other alternative financiers by means of Receivables Purchase or other arrangements that cover the finance provider’s right to receive the buyer payment. In these solutions, the payable continues to be due by the buyer until its due date.