Dynamic discounting: An age-old practice with a 21st century twist


Static discounting, where suppliers can be paid early by their buyers in exchange for a fixed discount on the goods or services they provide, has been around since the beginning of business. A dynamic discounting model allows for variable cost and timing by creating a window of discount opportunity. This “discount-window” allows suppliers to provide a discount in real-time when they require cash for their businesses. Unlike static terms, early payment could be on 10 days early or 30, depending on payment terms negotiated with the buyer. The discount capture window is available throughout the entire payment term — on demand as suppliers need it.

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The second variable for dynamic discounting is cost. With a static discount, this cost is fixed upfront. While with a dynamic approach, the cost can vary along a sliding scale or be more dynamic, depending on the model used.

Dynamic discounting is often contrasted with traditional static discounting programs where a buyer effectively offers two payment options: 100% payment at the full term of the invoice or a discounted amount before a fixed date. Both the discount and timing of early payment are generally prescribed by the buyer and presented as a “take-it-or-leave-it” option to the supplier.

How dynamic discounting is different from static discounts:

  • Suppliers can request early payment at any point once an invoice is approved on the portal
  • The timing and price of the discount is not fixed and can vary
  • Dynamic discounting offers complete flexibility and control for suppliers
  • The dynamic model increases effectiveness of a discount program and improves discount capture rates

Why “Static” discounts are not as effective as dynamic discounts:

  • Suppliers can plan for standard discounts by increasing prices
  • The static model limits the window for suppliers to request a discount
  • The cost of the discount is a “Zero flexibility” option for suppliers
  • The option may not be available or affordable when suppliers need cash flow the most
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Marketplace Dynamic Discount model

With the marketplace model, both price and timing are fully dynamic, and suppliers initiate an offer for a discount and control the rate of discount. They also choose which invoices they want to be paid early, and if, and when, they want to participate in the program. When suppliers can control the discount option, it becomes more affordable, and flexible than other cash flow options. This value creates a program that suppliers can rely on to run their business.

Marketplace dynamic discounting takes into account:

  • The number of days paid earlier than a supplier’s payment terms
  • The rate offered by the supplier
  • The value of all the offers made by participating suppliers at a given time
  • The cash your company or a third-party makes available to fund early payment
  • How supplier offers will deliver the desired return

How dynamic discounting works

For the marketplace model — which is only available through the Early Advantage platform—this is how dynamic discounting works.

How marketplace dynamic discounting works for suppliers:

  • Send Invoices using our supplier portal
  • Review accepted invoices: Accepted invoices are available on the portal for Early payment requests
  • Make your selection: you choose which invoices to discount
  • Set a discount rate: you offer a discount for early payment
  • Receive payment: if accepted, customers release payment on new due date

How marketplace dynamic discounting works for buyers:

  • Receive all invoices on the Early Advantage portal
  • Approved invoices are automatically available for Early Payment offers
  • Suppliers log in, choose which invoices they want to be paid early, and set an offer for a discount
  • You review the offer and accept/reject it, complete freedom
  • Your ERP is updated with discount and new pay date with no change to your current process
  • You still pay your suppliers directly, only faster
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