Dynamic Discounting

From Open Risk Manual

Definition

Dynamic Discounting describes a number of supply chain methods through which early payment discounts on invoices awaiting payment are offered to vendors and funded by the buyer. The service is dynamic in the sense that the earlier the payment, the higher the discount.[1]

It is a variant of payables finance whereby the buyer may utilise its own funds to pay an invoice or account payable prior to the original due date (Reverse Factoring, also known as Approved Payables Finance).[2],[3]

Dynamic discounting relies on buyers making early payments in return for a discount offered by the supplier on the goods or services purchased. Early payment can be made from the buyer’s own excess cash or from an intermediary financing provider.[4]


References

  1. Standard Definitions for Techniques of Supply Chain Finance
  2. IMF Workign Paper: Statistical Coverage of Trade Finance – Fintechs and Supply Chain Financing
  3. primerevenue
  4. Oliver Wyman: Supply Chain Finance, Riding the Waves