Banks diverge on dynamic discounting
With appreciation of the merits of dynamic discounting continuing to grow, attention has turned to the extent to which banks are committed to supporting this growth and how to maximize the value of the data generated.
The growth in the use of dynamic discounting is highlighted in the most recent AP & Working Capital Report published by PayStream Advisors, which found that the proportion of companies using it to capture rebates and discounts increased by 50% last year compared with 2016.
Dynamic discounting gives large, cash-rich buyers flexibility over how and when they pay suppliers, by allowing them to use their excess cash to obtain discounts to pay the seller, usually a smaller company, earlier.
The report offers a case study of a middle-market professional services organization with annual spend of $300 million to illustrate the potential savings.
It suggests that with a manual accounts payable process and no dynamic-discount management solution in place, the company will be offered discounts on 20% of its annual spend and can capture 5% of those discounts resulting in approximately $60,000 in annual savings.
However, the report authors estimate that by automating its accounts payable process and implementing a dynamic-discount management solution, the company would be offered discounts on 30% of its annual spend, with the average discount being about 1% and that the discount capture rate would rise to 80% on eligible spend, producing annual savings in the region of $720,000.