dynamic discounting white paper: cash returns from your supply chain
DESCRIPTION
This white paper provides an overview of dynamic discounting and the rapidly increasing acceptance of this solution that offers financing to suppliers while delivering an additional income stream to their customers. PrimeRevenue offers the only common solution for dynamic discounting and supply chain finance on the market allowing both buyers and suppliers to extract cash from their supply chains and realize unprecedented gains.TRANSCRIPT
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“If cost reduction is the current
destination,
discounts are the next frontier.”
Aberdeen Group
DYNAMIC DISCOUNTING CASH RETURNS FROM YOUR SUPPLY CHAIN
www.primerevenue.com Copyright © 2015 PrimeRevenue, Inc.
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 party’s 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
PrimeRevenue’s Dynamic Discounting solution and
where and when organizations should consider
deploying Dynamic Discounting.
PrimeRevenue Inc. 2015
INTRODUCTION
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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WHY USE DYNAMIC DISCOUNTING?
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Dynamic Discounting – cash returns from your supply chain
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Copyright © 2013 PrimeRevenue, Inc.
< > < 3 Supply Chain Finance
in Asia
Discount
3%
2%
1%
Discount
3%
2%
1%
40 20 10 30 Days 20 10 30 Days 40
15 days, 0% Cash Discount
EARLY PAYMENT DISCOUNT DYNAMIC DISCOUNT
1% 10 days, Net 30 days Dynamic, 30 days
15 days, 1.2% Cash Discount
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.
Meanwhile, Dynamic Discounting let suppliers use their
receivables to fund cash flow without taking on debt,
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
buyer’s 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.
*Source: Aberdeen Group, 2010
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Copyright © 2015 PrimeRevenue, Inc.
Dynamic Discounting: Cash Returns from your
Supply Chain