If cost reduction is the current

destination,
discounts are the next frontier.
Aberdeen Group

DYNAMIC DISCOUNTING
CASH RETURNS FROM YOUR SUPPLY CHAIN

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INTRODUCTION
Dynamic Discounting - self funding your Supply
Chain Finance program instead of using bank
funding - is an attractive solution for some
purchasing organizations and suppliers depending
on each partys metrics and capital investment
hurdle rates. Companies can use Dynamic
Discounting to reduce their payment terms and
operating cash flow in exchange for pricing
discounts which increase gross margins.
This publication provides an overview of
PrimeRevenues Dynamic Discounting solution and
where and when organizations should consider
deploying Dynamic Discounting.
PrimeRevenue Inc. 2015

What is Dynamic Discounting?

Dynamic Discounting allows organizations to pay suppliers faster in exchange for a

lower price or discount for goods and services purchased. The dynamic
component refers to the option to provide different levels of discounts based on
the dates of payment to suppliers, in most cases a greater discount the earlier a
payment is made.
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Dynamic Discounting cash returns from your supply chain

WHY USE DYNAMIC DISCOUNTING?

In today's challenging economic environment, cash is
one of the most important success factors for
suppliers. On the other side some buying organizations
are looking for ways to take advantage of discounts
offered by their suppliers in exchange for early
payment. Strong focus on early payment discounts
creates an opportunity for cash-strapped suppliers to
improve their financial situation. As a result of being
paid early, suppliers can improve cash flow and show
an improvement in their Days Sales Outstanding (DSO)
an important overall business metric.
Businesses with low cost of capital can ignore an
investment that delivers the type of returns available
through early payment discounts. The case for
capturing discounts is even more profound for
businesses operating on thin margins, as these types of
returns can have an impact on their bottom line.

enhancing credit ratings and minimizing impact on

their balance sheets.
Today, interest rates are extremely low, capturing
even a traditional discount of 1/10 Net 30, which
translates to a 18 percent annual rate minus the
buyers cost of capital, makes good financial sense.
Said differently: a two percent discount on a USD
10,000 invoice (USD 200) may not seem like much, but
multiply it by the total spend volume you process and
you will see how much money you're leaving on the
table. Moreover, 84 percent of businesses surveyed say
they have increased their focus on cash management*
with the top performers, successfully optimizing
discounts, resulting in improving overall liquidity.

Meanwhile, Dynamic Discounting let suppliers use their

receivables to fund cash flow without taking on debt,

Dynamic Discounting: Cash Returns from your

EARLY PAYMENT
DISCOUNT
Supply
ChainDYNAMIC DISCOUNT
Discount

Discount

1% 10 days, Net 30 days

Dynamic, 30 days

3%

3%

2%

2%

15 days, 1.2% Cash Discount

1%

15 days, 0% Cash Discount

10
20
30
40
Copyright 2013 PrimeRevenue, Inc.
www.primerevenue.com

Days
Supply

1%

Chain Finance
in Asia

10

20

30

40

<<

Days

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Copyright 2015 PrimeRevenue, Inc.
*Source: Aberdeen Group, 2010

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