We’ve all heard the saying ‘cash is king’ – probably more times than we’d care to remember. And yet, it’s a saying that remains utterly indisputable when it comes to business, irrespective of business size.
Indeed, a sound approach to optimising cash flow can prove to be the difference between the business that succeeds and the one that fails.
Looking at the procurement side of your business, you know there are a number of factors involved in optimising your working capital position – cutting procurement costs, improving payment timing and maintaining a healthy, profitable supply chain.
What you might not know is that Dynamic Discounting is a solution that allows you to tick all of these boxes, and can prove to be a huge win for your business.
Dynamic Discounting is perfect for you if you occupy a senior position in your supply chain, have a strong credit rating, a large working capital requirement or have supply chain risks related to the financial stability of key suppliers.
In this article we’ll talk about exactly how Dynamic Discounting works, and discuss some of the many benefits it can bring to your business.
How it works
Dynamic Discounting is actually a fairly simple solution to understand.
In the first instance, you’ll look to negotiate early payment discounts with your suppliers.
According to research conducted by sharedserviceslink, just 27% of businesses are currently taking advantage of early payment discounts, which potentially represents a huge missed opportunity for everybody involved.
Early payment discounts can optimise cashflow for your suppliers – to whom the overall discount is generally much less expensive (and much more reliable) than the alternatives of short-term borrowing and the risk of potential non-collection. Research suggests that, once a receivable is 120 days past due, there’s a 20% chance that it will never be collected – the likelihood actually declines as more time passes. There are obvious benefits to your supplier, therefore, in having their invoices paid in an accelerated, reliable manner.
From your point-of-view, even a modest discount of 1% on your total procurement spend, in return for early payment, would equate a sizeable annual cost saving.
To further improve your cash flow position, you can finance the early payment of your suppliers. External finance for discounting programmes typically works as follows:
1) Finance is made available to settle the supplier invoice within the discount period – at the discounted rate.
2) When the invoice would normally be due, or at a later date agreed with the financing party, you repay the amount advanced against your supplier invoice, plus an agreed financing fee.
There are a number of benefits for all parties involved in Dynamic Discounting.
But let’s focus primarily on the benefits it provides to you and your business. The most obvious advantage is the ability it gives you to improve your operating margins through the saving realized.
By early paying your suppliers, you help ensure that cash is on hand to meet their business commitments, reducing your supply chain risk and building strong, profitable relationships with your suppliers.
If you opt to finance your Dynamic Discounting programme, you will have the additional possibility of being able to delay cash outflows beyond current invoice due dates, improving your working capital position.
Dynamic Discounting with Gii Finance
Gii provides a comprehensive Dynamic Discounting solution, suited to businesses in all sectors.
Our service includes: supplier on-boarding to your discounting programme; arrangement of external financing (where necessary); and, the processing and settlement of all invoices eligible for discounting.
To discuss how Gii Dynamic Discounting can support your business, please contact us at firstname.lastname@example.org, or call us on +44 (0) 2078594742!