Supply Chain Finance And Dynamic Discounting

Dynamic Discounting & Supply Chain Finance  

Almost every business in this world thinking of a long run wants to keep its suppliers happy. They very well realize the importance of contented vendors for the smooth running of a business. Cash is the most important aspect of a business but unfortunately, due to dull economic conditions and lack of cash in the market, businesses are unable to cater to the payment needs of the vendors. However, there are a few good supply chain management options available like Dynamic Discounting and Supply Chain Finance.

Supply Chain Finance- It is a method of Vendor Finance in which the buyer pays the supplier through a third party. The third party or the financier pays to the supplier on buyer's behalf. The amount which is paid to the supplier is less than the actual amount mentioned on the invoice. The financier then takes the full amount from the buyer as per the agreed terms and the difference between the amount on the invoice and the actual amount paid to supplier serves as a profit for the financier. This method is also known as Supplier Finance. Both the buyer and the supplier get the benefit from it. The buyer gets away with the burden of timely payments without affecting the smooth flow of business, on the other hand, the supplier has access to quick cash and gives them the Working Capital required for running the business.

Dynamic Discounting - It is a more flexible way of early payment in which the buyer pays the supplier using their cash. Under this method, the supplier accepts the payment from the buyer at a discounted rate. It is called dynamic because the rate of discount keeps on changing depending upon how early the buyer makes the payment. The earlier the payment is the higher is the discount rate. It is a kind of  Cash Discount which the supplier gives in return for the early payment. This method is beneficial for both the parties as it helps the buyer in purchasing at a lower rate and as per the supplier's point of view it helps in smooth flow of business due to instant availability of cash. 

The purpose of both Dynamic Discounting and Supply Chain Finance are almost the same but the only difference is that the discount offered in dynamic discounting is never fixed whereas the discount in Supply Chain Financing is almost fixed. Priority Vendor is one of the most trusted names in India providing Vendor Finance services to its clients. Looking at today economical conditions and lacks of cash flow in the market it is recommended for businesses to opt for Supplier Finance in order to lower their burden of timely payments.  

Source: Medium

How Does Dynamic Discounting Platform Work?

source: google

As the word Dynamic suggests, dynamic discounting is a spontaneous process through which the buyers have got the power to pay their suppliers at a discounted rate which is not fixed. The rate at which it changes is dependent upon the time of payment. If the payment is made early the discount offered is also heavy. It is a simple online platform upon which the suppliers can submit their invoices for early payment and the buyers can view and approve the invoices eligible for early payment. It is a win-win situation for both the parties as the buyer's balance sheet is not affected and the sellers need for working capital is fulfilled on time. This ultimately helps in maintaining a smooth flow of business, as the seller gets the cash flow required to fulfil the next order.

Priority Vendor

Let's have a look at the whole process step by step.

- The vendor or the supplier sends the original invoice to the buyers.

- The buyer reviews the invoices and after it has cleared the eligibility criteria and all the credit/debit memos eligible for discount negotiation are cleared, it is uploaded electronically on the platform.

- After the invoice is uploaded the supplier can view the all the uploaded invoices on that platform. They can wait until the original maturity date of the invoice to get the payments or they can apply for an early payment request and get their payment released at an earlier date by giving a discount on the actual amount of the invoice.

Priority Vendor

PriorityVendor has been working upon bringing together various businesses and suppliers to connect them to this dynamic discounting platform. It is a simple process of smoothening the business flow. It has had a successful run in the retail, food and beverages, and electronic industry. This Vendor Finance facility prevents the suppliers or the vendors from approaching banks for loans at high interest rates in order to maintain their working capital. This kind of supplier finance also helps the buyer or the businesses as the money they are giving to the supplier was originally earning the interest from the banks which is quite low if we compare it to the discount that they are giving on the invoices to the vendors.

Source: Vendor Avii