Monetizing the Big Data Financial Supply Chain – Dynamic Payables Discounting
The Real-Time Web has matured to the point where it is now possible to collect enough data and perform detailed analysis on almost any customer or potential customer. This analysis can be used to enhance more traditional means of determining payment terms. The potential market for the application of Big Data Real-Time Technology and process models has never been larger and timing never better. *
Dynamic payables discounting is a process which allows buyers and sellers of commercial goods and services to dynamically change the payment terms—such as net 30—to accelerated payment based on a sliding discount scale. Dynamic payables discounting is “dynamic” in one or more ways. Dynamic discounting is also known as dynamic discount management, early payment discounting, or payables discounting.
Some benefits of utilizing this method include:
- Allows supplier to control payment timing
- Discount amount is calculated dynamically based on the number of days remaining until the due date.
- Discounts do not need to be negotiated in advance, but can rather can be taken dynamically as working capital needs dictate.
- Trading parties can tap into an alternative source of working capital with the use of third party creditors whom pay early on behalf of the buyer.
Dynamic Discounting offers suppliers the flexibility of discounting some or all of their receivables, eliminating the need to use high-cost financing options like factoring or asset-based lending to obtain cash liquidity and stronger balance sheet positions. It also mitigates the uncertainty surrounding the timing and amount of payments, allowing for superior cash flow forecasting capabilities. On the other hand, supplier financing can enable buyers to extend their payment terms with the injection of third party capital. These benefits accrue without adversely affecting trading partner relations. And interestingly, dynamic discounting is based on a buyer’s credit rating instead of being pegged to the supplier’s risk, further strengthening buyer-supplier relationships.
*The total worldwide market for receivables management is estimated at US$1.3 trillion. Payables Discounting and asset-based lending add an additional $100 billion and $340 billion, respectively. Some content gathered via Wikipedia and other sources.