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Banks diverge on dynamic discounting

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.

Colin Sharp, C2FO

Colin Sharp, senior vice-president, EMEA, at C2FO, suggests that banks – Citi, in the case of his firm – are actively encouraging the use of dynamic discounting since it benefits clients and is complementary to the bank’s trade finance portfolio.

According to Bob Stark, Kyriba’s vice-president of strategy, banks recognise the opportunity to collaborate and are actively looking to incorporate third-party technology into their overall solution.

“We also see scenarios where a corporate’s supply-chain-finance (SCF) programme requirements exceed the liquidity that a single banking partner can fund, which may necessitate leveraging third-party solutions,” he adds.

The only questions for the corporate is whether the cost of the platform on top of usual financing costs is economically viable, and what problem is being solved by the third-party solution, says Michael Vrontamitis, head of trade, Europe and Americas, at Standard Chartered.

“We expect corporates to become more focused on managing the working capital cycles in order to more strategically manage their supply chains and customers,” he adds.

“We also expect clients to deploy technologies to optimize working capital – including big data and analytical models – and potentially use artificial-intelligence (AI) bots to make decisions around when to pay early using bank funds or their own funds and when to pay late.”

Nilay Banker, founder and CEO of Inspyrus, describes dynamic discounting as both a challenge and opportunity for banks, saying: “It is a challenge in that it impacts deposits and new loans, but it can also increase demand for working capital financing.”


Others take a more trenchant view. In a truly global SCF solution, an enterprise or mid-market business needs funding for thousands of suppliers, located in multiple jurisdictions and in multiple currencies.

A single bank cannot provide for every one of these needs and banks are notorious for choosing their own bottom line over what is best for the customer, suggests PrimeRevenue’s senior vice-president, global marketing, Tom Roberts.

“This is not to mention the risk of a sudden jurisdiction or services exit,” he adds. “So banks can either join a third-party platform or offer their own solutions, which tend to be less beneficial for the customer.”

Michael Vrontamitis,
Standard Chartered

As Standard Chartered’s Vrontamitis observes, there is considerable interest in how dynamic-discounting platforms can make greater use of AI.

Having AI is not bleeding edge, although doing something meaningful with it is, suggests C2FO’s Sharp, who says it can be combined with smart data to ‘learn’ how to address high volume, repetitive customer support tasks, pricing recommendations and unique product features by customer segment.

“Yet, when it comes to making final B2B finance and procurement decisions, customers require support backed by human intelligence and financial experience,” he adds.

“Most important B2B finance and procurement decisions come down to leveraging data and insights to make better business decisions, not having a computer make those decisions alone.”

The real impact of dynamic discounting comes from coupling it with invoice automation and payment automation, which ensures companies capture every possible discount available, adds Banker at Inspyrus.

“Dynamic discounting already utilizes advanced algorithms to help rapidly segment suppliers into optimal discount tiers, and automatically recognises and applies pre-existing discount terms to expedite invoice processing,” he concludes.

“This payment automation enables organizations to take advantage of discounts much more effectively — virtually in real time — and capture even greater returns.”

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