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Glossary

What is dynamic discounting?

Dynamic discounting lets a buyer pay suppliers early in exchange for a discount, where the discount is larger the earlier the payment is made.

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How dynamic discounting works

Once an invoice is approved, the buyer offers to pay before the due date in return for a reduction. The "dynamic" part is that the discount slides with the payment date: pay very early and the discount is larger, pay closer to the due date and it shrinks. Suppliers choose which invoices to accept early payment on.

How it differs from fixed early payment terms

Traditional terms offer one fixed discount if the buyer pays within a set window, and nothing after it. Dynamic discounting replaces that single cut off with a sliding scale, so there is a reason to pay early on any day before the due date.

Why both sides use it

  • Buyers earn a return on spare cash and lower the cost of goods.
  • Suppliers get cash sooner without borrowing.
  • Relationships improve when suppliers can choose to be paid faster.

What it depends on

Early payment is only possible on invoices that are approved quickly. Invoiceflow checks invoices against the purchase order, receipt and contract terms and moves clean invoices to approval fast, which gives finance the time to choose when to pay.

Keep reading

Invoice management Invoice management is how accounts payable receives, checks, approves and pays supplier invoices, and records each payment.Read more Automated Clearing House The Automated Clearing House is the United States network that moves money electronically between bank accounts.Read more Straight through processing Straight through processing moves a payment or invoice from start to finish electronically, with no manual step.Read more

Frequently asked questions (FAQ)

Common questions

What is the difference between dynamic discounting and supply chain finance?

With dynamic discounting the buyer pays early from its own cash. With supply chain finance a bank or funder pays the supplier early and the buyer repays the funder on the original due date. Read about financial supply chain management.

Why would a supplier accept a discount?

To get cash sooner without taking a loan. For a supplier with tight cash flow, a small reduction can cost less than borrowing, and the supplier decides invoice by invoice whether to accept. Read about net 30 terms.

What does a buyer need to offer dynamic discounting?

Spare cash, a way to make offers to suppliers and, above all, fast invoice approval. An invoice stuck in review cannot be paid early, so clean matching and routing come first. See Invoiceflow.

Have a question we have not answered? Ask the Expert

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  • 1 A 30 minute walkthrough Built around your team, whether that is procurement, legal, IT or finance.
  • 2 Your contracts, not ours Bring a few sample agreements and watch Aavenir AI extract and review them.
  • 3 ServiceNow or standalone We show the deployment that fits the systems you already run.

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