Dynamic Discounting Basics

Dynamic discounting enables accounts payable (AP) departments to capture discounts from suppliers by paying invoices early. It also allows buyers and suppliers to dynamically change payment terms to accelerate payments based on a sliding discount scale. Suppliers can use dynamic discounting to provide discounts on approved receivables any time up to the invoice due date. This type of discounting is an effective strategy to improve working capital management and achieve bottom line savings from AP.

Recently, Direct Insite and PayStream Advisors surveyed AP professionals across organizations. The study found that 84 percent of AP professionals view discount capture as an important priority for their organizations.

Challenges with Dynamic Discounting

While most AP professionals agree that capturing discounts is a critical component of an effective capital management program, in practice, most companies struggle to effectively integrate dynamic discounting on a meaningful scale. Only one-fourth of respondents said their organizations were able to capture all available discounts. The same number of respondents reported missing at least 10 percent of discounts, contributing to ineffective organizational cash management.

To address this gap in discount capture, companies need to leverage AP automation and ePayment technologies. Manual paper invoice processes create lengthy approval and payment cycles that prevent companies from obtaining supplier discounts. In addition, these manual processes fail to provide visibility into organization’s transactional history, making it difficult for senior management to make sound business decisions based on data.

Benefits of Automation and Technology in Dynamic Discounting

By using technology to automate AP processes, companies can expect to achieve the following business benefits:

  • Lower Costs: Invoicing and payment automation increases the discounts AP departments can receive by reducing the average invoice cycle time from 23 days to just five. Automation technology also eliminates the time spent by AP professionals importing payment data manually and processing invoices, making the department more productive. Direct Insite’s PAYBOX® solution automates invoicing and ePayments processes in companies. This technology helps organizations capture more discounts from suppliers with better rates of returns.
  • Improved Oversight and Control: Modern AP technology comes equipped with interactive reporting tools that provide insight into payment trends and real-time data to help executives and AP professionals make better financial decisions grounded in data.
  • Greater Compliance and Security: With PAYBOX®, companies can increase payment security and accuracy by eliminating errors caused by manual data entry and avoiding problems with lost or stolen invoices or other financial data. As a Payment Card Industry (PCI) compliance invoicing solution, PAYBOX® also products cardholder data from payment fraud.

 With Direct Insite’s PAYBOX® solution, companies can manage discounting easily from a single portal that includes a comprehensive range of tools and features, such as supplier portals, automatic invoicing scan and capture, as well as vendor management. The portal also supports secure disbursement, receipt and processing of payments via credit card or the Automated Clearing House Portal. With PAYBOX®, AP professionals can pay one or more invoices at a time and access real-time payment data and trends to make stronger financial decisions. For more information, give us a call at (631) 873-2909 and receive a personalized consultation.

Working Capital Management