While offering discounts to suppliers in exchange for prompt payment is a conventional business practice, payment terms have been traditionally been set in advance.
But new technologies and processes offer far more flexibility.
Through “dynamic discounting,” payment dates and discounts can be changed at any time along the invoice-to-payment timeline. Taking advantage of these discounting tactics improves your working capital strategies and builds stronger relationships with key suppliers.
With more flexibility through advanced technologies, a more dynamic approach to discounting can deliver high returns – as much as 1% to 2% per month. Specific suppliers can be offered customized discount opportunities – either on an ongoing or ad hoc basis – based on size, spending, geography, and your analysis of discounts they may be willing to accept.
From the supplier’s point of view, the opportunity to be paid more quickly helps them to use their own cash more effectively without the need for third-party financing. With supplier portals and electronic invoicing tools, suppliers can make additional discount offers even after submitting their invoices.
4 essential best practices:
Why aren’t more buying organizations implementing dynamic discounting to optimize working capital and gain higher returns? Programs like these require intricate planning, significant process change, and advanced technologies.
With 16 years of experience in helping Fortune 1000 companies deploy these technologies and processes, Direct Commerce recently published a white paper, “Optimizing Supplier Discounting.” It outlines four key best practices that must be followed to successfully implement dynamic discounting and optimize returns.
Following these best practices can help you “get it right the first time”:
1. Negotiate discounts with top-spend suppliers first
2. Give suppliers flexible tools and incentives to use them
3. Embed dynamic discounting into your corporate culture
4. Monitor productivity through analytics and reporting to make continuing improvements
This series of posts addresses these four best practices, demonstrating how each contributes to companies gaining multi-million dollar savings through dynamic discounting and significantly enhancing supplier relationships.
Read part two for more details on the first two of these essential best practices.