What is dynamic discounting?
By Tim White · Glossary · Last updated
Dynamic discounting is an arrangement where a buyer pays a supplier early in exchange for a discount that grows the earlier the payment lands, instead of a single fixed term like 2/10 net 30. It's usually agreed per invoice or through a platform, and it's more common between larger companies than small ones.
How it differs from a fixed discount
2/10 net 30 offers one rate with one cutoff. Miss day 10 and the discount is gone. With dynamic discounting, paying on day 5 might earn 1.8 percent, day 15 might earn 1 percent, and day 25 almost nothing. The discount slides with the date you actually pay.
When it makes sense
It suits a buyer with spare cash and a supplier who values faster payment more than the last percent of margin. For a small business, the simpler version is just asking: 'If we pay this week, can you take 1.5 percent off?' Some will say yes.
Either way, you can only pay early if the invoice is entered and approved early. Bills that sit in an inbox for a week lose the discount before anyone sees them.
Common questions
Who proposes the discount?
Either side. A supplier short on cash may offer one. A buyer with spare cash may ask for one.
Sources
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