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.
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.
