What is dynamic discounting?

One way to pay that lets sellers get paid earlier than the agreed-upon net terms is through dynamic discounting.

Deals that offer savings to customers who agree to pay early make the process work. This gives sellers more control over their cash flow, which helps the company make more money and stay liquid.

Dynamic pricing is like supply chain finance, but the buyer pays for the goods themselves instead of a third party.

Because of this, a supplier might give a 10% discount to customers who pay in 15 days instead of 30 days. Customers will likely pay early, and the seller will still profit from the deal.

Suppliers can get cheaper money and use their extra cash for growth and investments with dynamic pricing suitable for buyers and sellers. The buyers get a risk-free return on the money they haven’t spent yet.

Synonyms

• Early Payment Discounts: Discounts are offered to customers before the agreed-upon payment date.
• Accelerated Payments: Payments made in advance of the agreed-upon payment date.

Dynamic Discounting: How Does It Work?

Early payment discounts aren’t a new idea. For example, 2/10 net 30 has been around for long and is the usual way to bill.

Dynamic discounting is different because the prices can be changed and are done automatically.

Suppliers have complete control over their discount policies, which lets them make deals more appealing to specific customers or transactions.

You can use dynamic pricing in many ways, such as offering different discounts based on the payment method you choose or making special deals for large or frequent purchases. But these simple steps are usually what happens:

• A buyer gets things from a seller or supplier.
• The vendor gives an invoice to the customer through a dynamic discounting platform, a software company.
• The customer signs off on the bill and sends payment to the seller.
• Based on the due dates, the seller can see what deals are out there and choose whether to offer a price.
• If they take the deal, the customer can pay early and get the agreed-upon discount.
• The discount is taken out of the payment when it’s due, as decided upon.

Because this process is mostly automated, it lets companies add flexible prices to their billing process, where payment terms used to be set in stone.

Advantages of Dynamic Discounting

A dynamic discounting scheme is suitable for buyers and sellers in many ways.

Good things for buyers

Dynamic pricing gives buyers several benefits, such as:

People who want to buy something already have the money to pay for it, so they can use dynamic pricing as a risk-free way to get their money back.

With dynamic discounting, you can save money on the price of things by taking advantage of early payment discounts.

More quickly getting goods and services: Buyers can move on to the next job or deal when they get their goods and services more quickly.

• Better relationships between buyers and sellers: When buyers pay sellers on time, sellers are happy to do business with them, which makes relationships better, the dunning process more accessible, and service better.
• A healthier supply chain: When buyers can get the things they need faster from happy sellers, there is less chance that the supply chain will break down.

Good things for suppliers

Dynamic pricing is also suitable for sellers. These are the most important benefits:

• Better cash flow for vendors: When sellers accept payment early, their DSO (days sales outstanding) goes down. This means they can turn sales into cash faster, improving their working capital.
• The payment process is more efficient: static prices, a type of traditional sales discounting, are strict and make billing more time-consuming. The process is sped up and made more accessible with dynamic discounts.
• A low-cost way to get money: dynamic prices make it easier for suppliers to get money cheaper than any other way. This lets them pay for unexpected costs and put money into their growth and new ideas.
• Better predictions of future cash flows: dynamic discounting lets suppliers choose when they want to be paid, which helps them properly plan for unexpected expenses.
• More control over payments and money: dynamic discounting lets businesses pick whether to apply a discount rate to a single invoice, a group of invoices, or all of their invoices. This keeps them in charge of their money and keeps them from running out of money in the future.

What Dynamic Discounting Solutions Can Do

The process of dynamic discounting is very complicated, and so is the program that runs it. Most dynamic discounting methods have a few main parts.

Automating Things

Dynamic discounting options make managing discounts easier by letting users quickly make, approve, and send invoices.

They also offer discounts and automated reminders to make payments regularly, making payments more manageable.

Vendors can decide ahead of time how to give discounts and can change the deals based on how good a credit customer is.

Fitting in

Dynamic discounting solutions can work with other software packages, just like most.

They can be linked to ERP systems, payment sites, and balance sheet accounts. Companies can keep track of all their financial information in one place, and processes can be streamlined across areas to cut down on manual work.

The Report

Dynamic discounting options let users see reports that give them financial information.

The reports help businesses monitor their cash flow, accounts due, and their suppliers’ performance.

Businesses can better decide how and when to pay their bills when they can see them. For instance, sellers can use the reports to monitor their profit margins and change their discount policies as needed.

Configure, Price, and Quote (CPQ)

Configure, Price, Quote (CPQ) software helps companies make and keep track of correct customer quotes. Because CPQ has built-in flexible billing, rules-based discounting, product bundling, and payment choices, the whole process of setting up and paying for something can be sped up.

Dynamic discounting is built into CPQ systems and the other way around, so companies can usually use both.

Billing Platform

Operating a billing platform includes a lot of different tasks, such as managing discounts. Businesses need a billing system that can handle different ways for customers to pay and different rates.

The best billing systems offer automated billing, payments, credit card processing, discounting choices that can be changed, and intelligent reporting tools.

Dynamic discounting options will come with a built-in billing platform. This will make it easy for users to keep track of their bills and payments.