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Dynamic discounting

Dynamic discounting is a financial tactic that enables companies to provide early payment terms on invoices to suppliers in exchange for a discount. By automating and streamlining this procedure, dynamic discounting systems give organizations a platform to monitor and maximize their supplier discounts.

What is Dynamic Discounting? 

With the use of the financial tactic known as dynamic discounting, companies can provide their suppliers the choice of making an early payment in exchange for a discount on the invoice. It is a flexible and advantageous strategy that gives suppliers the chance to get paid in advance of the agreed-upon payment terms, while purchasers (companies) can save money by utilizing early payment discounts.

Traditional invoice payment terms often require suppliers to wait a predetermined amount of time, such as 30, 60, or 90 days, before receiving payment from the buyer. Dynamic discounting, on the other hand, allows the buyer to offer the supplier the option of receiving payment sooner, frequently within a shorter term, in exchange for a lower invoice amount.

The discount offered in dynamic discounting is calculated based on predetermined terms agreed upon by both the buyer and the supplier. The discount rate is typically lower than the interest rates charged by traditional financing options or factoring services, making it an attractive alternative for suppliers.

Dynamic discounting is typically facilitated through the challenges of the B2B digital payments platform or software solution that automates the process. The platform allows suppliers to view their invoices, select invoices they wish to be paid early, and indicate the desired discount rate. The buyer’s finance team reviews the requests and processes the early payment accordingly.

Benefits of dynamic discounting include improved cash flow management for suppliers, as they receive payment earlier and can use the funds for various purposes, such as investing in their business, paying off debts, or pursuing growth opportunities. For buyers, dynamic discounting can lead to cost savings by leveraging the discounts offered by suppliers, improving relationships with suppliers through prompt payment, and potentially negotiating better terms for future transactions.

Dynamic discounting is a flexible financing choice that offers a win-win situation for buyers and suppliers, allowing providers to receive early payment and purchasers to save money.


Dynamic discounting works through a collaborative agreement between a buyer and its suppliers. The process involves the following steps:

1. Agreement

The buyer and its suppliers agree to participate in a dynamic discounting program. This agreement outlines the terms and conditions for early payment discounts.

2. Invoice Submission

As is customary, suppliers provide the buyer their invoices for the items or services they provided. The agreed-upon payment terms, such as 30, 60, or 90 days, are stated on the invoices.

3. Discount Offers

The buyer’s finance team reviews the invoices and determines the eligible ones for early payment discounts. The team calculates the potential discount based on the agreed-upon discount rate and the remaining days until the original payment due date.

4 .Discount Options

The buyer’s system or platform generates a list of eligible invoices and corresponding discount options for each. Suppliers can access this information through a portal or platform provided by the buyer.

5. Supplier Decision

Suppliers review the discount options and decide whether to accept or decline the early payment offer. They consider factors such as their cash flow needs, the discount rate, and the impact on their financials.

6. Early Payment

The buyer starts the early payment procedure if the supplier accepts the discount offer. Usually, the buyer uses their regular payment methods, like a cheque or an electronic funds transfer (EFT), to make the payment.

7. Discount Adjustment

The buyer adjusts the invoice amount based on the accepted discount. The adjusted payment is then remitted to the supplier, usually within a shorter timeframe than the original payment terms.

8. Reconciliation

Both the buyer and supplier reconcile the early payment transaction in their respective financial systems. This ensures accurate accounting and record-keeping.

9. Reporting and Analytics

The buyer’s dynamic discounting system provides reporting and analytics capabilities, allowing both parties to track the discounting activities, measure cost savings, and gain insights into cash flow management.

It’s important to note that dynamic discounting is voluntary for suppliers. They have the choice to accept or decline the early payment offer based on their individual circumstances and needs. Dynamic discounting provides suppliers with more control over their cash flow by offering an alternative to waiting for the full payment term.

The process is typically facilitated through a digital platform or software solution that automates the calculation, communication, and payment aspects of dynamic discounting, streamlining the entire process for both buyers and suppliers.

Dynamic discounting benefits

Benefits to Sellers:

  • Improved cash flow management
  • Reduced financial risk
  • Lower financing costs
  • Strengthened supplier-buyer relationships
  • Flexibility and control over cash flow
  • Competitive advantage
  • Business stability and growth opportunities

Benefits to Buyers:

  • Cost savings
  • Enhanced supplier relationships
  • Improved negotiating power
  • Streamlined accounts payable processes
  • Cash flow forecasting and optimization
  • Supplier stability and reliability
  • Competitive advantage

Implementing dynamic discounting software brings these benefits to sellers and buyers alike, fostering mutually beneficial partnerships and driving financial success.

How dynamic discounting differs from other solutions:

Dynamic discounting differs from other financing solutions in several key ways. Here are some ways in which dynamic discounting sets itself apart:

Voluntary Participation

Dynamic discounting is a voluntary arrangement between buyers and suppliers. Suppliers have the choice to accept or decline the early payment offer and associated discount. It provides suppliers with flexibility and control over their cash flow, as they can selectively choose which invoices to discount based on their specific needs.


In dynamic discounting, it is the buyer who initiates the early payment offer. The buyer determines which invoices are eligible for early payment discounts based on their internal criteria. This distinguishes dynamic discounting from other financing options, such as factoring or supply chain finance, where third-party financial institutions typically provide the funding and initiate the payment process.

Lower Financing Costs

Dynamic discounting often offers lower financing costs compared to traditional methods of borrowing or factoring. The discount rate in dynamic discounting is typically lower than the interest rates charged by external financing sources. Suppliers can benefit from accessing funds at a more cost-effective rate, reducing their financing expenses and improving their financial position.


Dynamic discounting can foster stronger relationships between buyers and suppliers. By offering early payment discounts, buyers demonstrate their commitment to prompt payment and efficient financial practices. This can help build trust, enhance collaboration, and strengthen the overall supplier-buyer relationship, leading to potential advantages such as better pricing, improved service, and priority access to supply.

In-House Control

Dynamic discounting solutions are typically managed in-house by the buyer, either through their accounts payable department or a dedicated financial software platform. This gives buyers greater control over the discounting process, payment timing, and the ability to align it with their own cash flow management strategies.

Quick Payment Turnaround

Dynamic discounting enables faster payment turnaround times compared to traditional payment terms. Suppliers can receive early payment for their invoices, often within a shorter time-frame, reducing their wait for funds and enhancing their cash flow management. This speed of payment can be advantageous for suppliers with immediate working capital needs or those seeking to capitalize on growth opportunities.

Non-Recourse Financing

Unlike certain forms of factoring or invoice discounting, dynamic discounting is typically structured as non-recourse financing. This means that the supplier will not be held liable for payment if the buyer defaults on a payment or experiences financial difficulty. Without taking on the credit risk associated with the buyer, suppliers might gain from early payment.

Overall, dynamic discounting differentiates itself through its voluntary and buyer-initiated nature, lower financing costs, relationship-building potential, in-house control, quicker payment turnaround, and non-recourse financing structure. It provides a flexible and mutually beneficial financing solution for both buyers and suppliers, contributing to improved cash flow, financial stability, and collaborative partnerships.


Dynamic discounting is a flexible financial strategy that benefits both buyers and suppliers. It improves cash flow for suppliers, lowers financing costs, strengthens relationships, and offers cost savings for buyers. With voluntary participation, buyer-initiated offers, and in-house control, dynamic discounting stands out among financing solutions. It streamlines processes, enhances cash flow management, and fosters collaboration. Implementing digital platforms automates the process and provides transparency. Overall, dynamic discounting is a win-win approach for financial stability, cost savings, and growth.

Madhusmita Panda

Chief Marketing Officer at KredX

Madhusmita is the multi-hyphenate growth specialist at KredX. She worked with industry giants like Wipro and ICICI before turning entrepreneur and then brought that decade of expertise to KredX. She joined the fintech powerhouse in its early years and quickly became a growth driver creating marketing innovation in the fintech ecosystem with a unique approach integrating product and partnerships.