Dynamic discounting – what is it?
Dynamic discounting is a financial solution whereby a buyer can receive a discount from a supplier in exchange for early payment of an invoice. The amount of the discount is variable and depends on the number of days by which the payment is accelerated – the sooner the payment is made, the greater the discount.
This mechanism allows suppliers to increase liquidity and buyers to reduce the cost of purchases. Dynamic discounting is based on individual arrangements between business partners and is often implemented through financial platforms or ERP systems that automatically calculate the possible discount and payment term. This flexible working capital management tool enables companies to make better use of cash, improve supplier relationships and reduce the risk of payment bottlenecks in the supply chain.
Frequently Asked Questions (FAQ)
1. Who benefits from dynamic discounting?
The solution is mainly used by large trading companies, distributors and raw material suppliers who want to improve liquidity or optimize cash utilization. In the food and feed industry, where payment cycles are sometimes long, it is a particularly useful tool.
2. What are the benefits of dynamic discounting for the supplier?
The most common are raw materials with high price volatility, such as milk powder, whey, vegetable oils, sugar, cereals, vegetable proteins and dairy fats. Forward contracts allow companies to hedge the prices of these products for future periods.
3. What benefits does the buyer gain?
- Gains a discount for early payment, which reduces the cost of purchasing raw materials.
- It can manage surplus cash more efficiently.
- Increases its credibility and negotiating power with suppliers.
4. What are the main benefits of entering into a forward contract?
- Safeguarding price and margin against market fluctuations.
- Better planning of budget and operating costs.
- Ability to build stable, long-term relationships with counterparties.
- Greater predictability with large trade volumes.
5 . What is the difference between dynamic discounting and a classic discount for early payment (e.g. 2/10, net 30)?
Traditional discounting has a fixed value and is valid for a certain period of time (e.g. 2% discount if payment is made within 10 days).
In the dynamic discounting model, the discount changes dynamically every day – the system automatically calculates how much discount the buyer can get if he pays today, tomorrow or in a few days.
6. Can payment discounting be combined with other forms of financing?
Yes, dynamic discounting can work alongside other instruments, such as factoring, forfaiting or supply chain finance (SCF). Companies often combine different solutions to better manage liquidity and credit risk.
7. What industries use dynamic discounting most often?
It is most often used by companies in the FMCG, food, chemical, logistics and raw materials industries. At companies such as Foodcom S.A., dynamic discounting is an important financial tool to support liquidity and profitability.
