Empower Your Suppliers With Flexible Payment Terms


Empower your suppliers with flexible payment terms

Dynamic discounting creates supplier options


If you’re like most organizations, your suppliers don’t fall into a one-size-fits-all mold. Instead, they run the gamut from small businesses to companies the same size or larger than your own.

It follows that those companies — and the financial executives who run them — possess vastly different accounts payable needs.

While positive cash flow is a bottom line need for all companies, payment timing that works for one company may be a non-starter for another. That’s why adding dynamic discounting to your supplier payment options is a win-win for you and your suppliers.

Dynamic discounting empowers both sides of the payment equation — you and your suppliers.



The ABCs of dynamic discounting

Just as its name suggests, dynamic discounting provides a discount on a supplier’s invoice in exchange for earlier payment. While many suppliers are eager for early payment, many aren’t aware of dynamic discounting because their buyers don’t offer it.

Dynamic discounting comes in different flavors. It can involve complex web interfaces that offer a bewildering array of options. A lack of transparency may lead suppliers to select terms that they don’t understand, leading to a resistance to the overall methodology.

However, at its best, dynamic discounting provides options that are beneficial for both you and your suppliers, tailored to industry norms. Such a program is based on predictive analysis of your current supplier base so as to understand how your current supplier payments programs work and what dynamic discounting arrangement is most beneficial.

Using the most appropriate dynamic discounting arrangement offers benefits for you and your suppliers. In exchange for holding onto your money, you can gain some basis points off accounts payable. Add those discounts up across your supplier landscape, and those basis points may transform A/P into a profit center from a cost center.

You can decide what terms to offer when to what suppliers. If you’d rather maintain longer terms in some situations, that is an option. Laddering payment terms throughout your supplier ecosystem can optimize your cash flow while helping your suppliers make the most of theirs.


How to leverage dynamic discounting

 The key to creating a dynamic discounting arrangement that is a win-win for you and your suppliers begins with a customized rationalization of your current supplier terms and options.

Such a program examines the terms that are currently offered to suppliers and how suppliers are responding to those terms. A payments execution company that facilitates supplier relationships employs sophisticated predictive analysis to provide optimal dynamic discounting options.

The result? Recommendations based on experience and industry averages to optimize supplier relationships and cash flow.



Strategies for converting suppliers


All too often, companies dump payment mandates onto suppliers without thinking through the implications. Skeptical suppliers may be suspicious of dynamic discounting and other payment options because they’ve been burned in the past by companies forcing them into vendor management systems that are expensive and difficult to navigate.

Instead of the payments equivalent to bullying, we recommend engaging in a thoughtful conversation with your suppliers to see how dynamic discounting and other payment options might benefit them.

After all, your suppliers are valuable partners. Your success is their success and vice versa. To open a dialogue with your suppliers about dynamic discounting, try these four tactics:


#1: Understand the current relationship

Instead of jumping into a conversation without the backstory, obtain a complete history of the supplier’s current relationship and payments history. The best conversations stem from knowledge of the supplier’s role, the scope of the relationship and the likely future trajectory of the relationship.

#2: Consider the economic context

It’s all too easy to demonstrate a lack of sensitivity towards your suppliers. In theory, companies that employ suppliers hold the cards. However, the days of suppliers buckling under to their buyers’ terms are likely over, as economic growth and globalization are creating more competition for supplier services.

#3: Reflect on the supplier’s point of view

As we mentioned earlier, all suppliers are not created equally. Some may be boutique businesses while others are hard-charging, fast-growing middle market companies. Many suppliers have a variety of terms with their other clients, so will need to fit what you offer in with their other accounts receivables strategies.

#4: Use experienced staff

Pulling an intern or payments clerk into the delicate dynamic discounting conversation is a bad idea. Those individuals aren’t experienced in negotiating with suppliers or understanding their history and point of view. In fact, partnering with a payments execution company experienced in the universe of payments options and dynamic discounting mean that you can outsource these conversations. Once this partner has conducted a rationalization survey of your current A/P situation, their supplier conversion experts can take the next step and engage directly with your suppliers.

#5: Negotiate terms

With the table set perfectly, the actual conversations with your suppliers are likely to produce the most favorable result for both you and those suppliers. When offered a menu of options tailored to their specific needs, suppliers are likely to respond favorably.



A final word

 Dynamic discounting is one of many supplier payment options gaining traction in today’s vigorous payments environment. When employed appropriately, it optimizes cash flow for both you and your suppliers.

If you want help creating a strategy to convince your suppliers to adopt electronic payments, let us know.