Dynamic Discounting & Supply Chain Finance

1. Dynamic Discounting & Supply Chain Finance Main Aim Is To Benefit The Business Financially

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3. Cash Flow • Every business wants to achieve a higher profit with the least possible investment and operation cost. • Hindrances like unstable economic condition, limited availability of cash and strict credit policies of financial institutions, makes it difficult to grow for small and medium-sized businesses. • In order to overcome these hurdles small and medium business can use alternatives like Dynamic Discounting and Supply Chain Finance. • Each has a different way of vendor finance. It is very important for a business to analyze both the options and research about their benefits and drawbacks before implementing them in their cash flow. 2

4. Dynamic Discounting • It a technique of vendor finance in which the business uses its excess cash to make the payment to their suppliers or vendors. • In return, the supplier provides the goods or services at a lower price or offers a discount on the original price. • As the word dynamic suggests the discount offered by the supplier keeps varying according to the terms and conditions of payments. • Cash discount or invoice discounting is based on a simple logic, the faster the payment is made the higher is the discount offered by the supplier. • It provides the flexibility and hold to the business on the payment terms, they have complete control over the time of payment. • It is a kind of EARLY PAYMENT discount which is on an invoice basis. • This supply chain management solution is beneficial for both the buyers and the supplier as the buyer gets goods at a cheaper rate and the supplier gets the advantage of earlier payment. 3

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6. Supply Chain Finance • It is a technique of vendor finance in which the business or the buyer finance the early payment for the supplier using a third party financier. • The financier makes cash available to business early, depending upon the credit eligibility of the business. • This solution makes it possible for the business to extend their payment to the supplier and at the same time they get paid early. • Many people misunderstand it as a loan. In reality, it is different from a loan. This method is like other methods of supplier finance beneficial for both the parties involved in the transaction. • The main benefit of this supplier financemethod for the business is that it does not use its balance sheet to make an earlier payment. • It helps in a smoother flow of business as the supplier is getting a consistent payment through this kind of invoice financing because of the early cash availed to the business by the financier. 5

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8. Major Difference • The major difference between the dynamic discount and supply chain finance is between the funding. • In dynamic discounting the business uses its excess cash whereas in supply chain finance the business takes the help of a financier or a third party in order to procure funds. • Another difference is between the discount rates. • The discount is flexible and is dependent upon the payment terms in dynamic discounting whereas in Supply chain finance it is mostly fixed. 7

9. Conclusion So for a better growth and consistentworking capital small businesses can go for any of these methods but supply chain finance always has an upper hand as it is an easy source of finance by a third party and no cash is required to be invested by the business. 8

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