2 MARCH 2016
On the Xelix platform, all discounts are calculated dynamically, meaning far greater flexibility for buyers and suppliers alike.
So How Does Dynamic Discounting Actually Work?
Dynamic discounting is certainly a new buzzword within the finance/procurement space, but have you ever wondered how it actually works? Despite sounding complicated, it is a fairly straightforward concept and an important evolution from the world of Static discounts.
Out With The Old: Static Discounts
A traditional 2/10 net 30 discount is “static”. Simply put, if the buyer pays an invoice on day 10 (or before), they are entitled to take a 2% discount on the invoice value.
Once day 10 has passed, however, the opportunity for capturing discounts is lost.
A static discount looks something like this:
So what’s the problem?
Well, for buyers, a static discount is inflexible. For example, if the company had an influx of cash on Day 12, the opportunity for capturing discounts is off the table. Conversely, if the buyer is able to make the payment immediately (say on Day 1) the 2% discount does not reward the buyer accordingly.
Static discounts are equally inflexible for suppliers, who are unable to choose the appropriate timing of the early payment in line with their liquidity needs.
In With The New: Dynamic Discounts
Unlike static discounts, dynamic discounts are calculated on a sliding scale tied to the payment date. So the earlier a payment is made, the higher the discount on offer, and vice versa.
A dynamic discount looks like this:
What’s so special about Dynamic Discounts?
Well, for the buyer, it means the possibility of capturing discounts at any point during the payment term. Regardless of whether the buyer is able to pay on day 10 or day 25, they are able to capture fairly priced discounts.
At the same time, dynamic discounts allow suppliers to choose at which point they take early payment, with total visibility on pricing.
On the Xelix platform, all discounts are calculated dynamically, meaning far greater flexibility for buyers and suppliers alike. Our fundamental belief is that early settlement is an extremely powerful commercial strategy, yet under-utilized given the difficulties to manage effectively. Dynamic discounts are an important part of our solution that aims to unlock cash flow that is inefficiently tied up in the global supply chain.
If you want to find out more about how our platform works, get in touch below.