Dynamic Discounting is a cost-saving solution that improves profitability for buyers as vendors offer discounted prices for getting paid on invoices early. Vendors offer different discounts for different payment dates. Buyers can enjoy more significant discounts by paying invoices early.
Dynamic discounting is offered by suppliers to buyers based on the dates of payment. Dynamic discounting provides the buyers with the flexibility to choose when and how to make payments for the goods and services purchased.
Dynamic discounting is usually applied on an invoice basis, and the discount is typically a percentage of the total invoice amount. Buyers with excess cash on their balance sheet can use the funds to purchase higher discounts. The realized cost savings is considered a return for the funds that sit in the bank account otherwise.
A dynamic discounting solution is profitable for both buyers and suppliers. Buyers can benefit from using their idle funds to get bigger discounts. Suppliers can get paid for their invoices early, improving business cash flow. With dynamic discounting, there is no need for advance negotiations. Buyers usually set up liquidity limits and allow suppliers to take discounts. Discounts are not fixed, and they can change with each invoice. Vendors have complete control over the discounts and invoice dates.