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Dynamic Discounting and Targeting the Tail

Supply Chain Management

Effective supply chain management is a growing challenge for many businesses.  Increased costs, supplier concentration, volatility, multiple currencies and payment terms are impacting the ability to optimise supply chain performance.

A knee jerk reaction for a business may be to target what is causing us the biggest headache, which is generally that the biggest suppliers get the undivided attention.

It is well documented that approximately 80% of procurement spend is incurred by the top 20% of suppliers. Procurement teams invest heavily in their core spend areas, but the final 20% of spend, the “tail-end”, remains a largely untapped opportunity for most companies.

There are a lot of characteristics within the tail-end of the supply chain which include:

  • A large number of smaller suppliers that have working capital challenges
  • Multiple payment terms and early payment settlements
  • Poor spend visibility: the sheer volume of transactional activity, coupled with bespoke side arrangements provides difficulty for procurement teams to track and monitor relative supply chain performance
  • Less contractual restrictions: Often tail-end suppliers have less formal contractual relationships with their customer meaning they are more receptive and nimble to change

With the development of technology platforms such as Timelio, scalable and innovative options have been provided to enable companies to gain efficiencies from their suppliers. Supply chain finance (SCF), or more specifically “dynamic discounting”, is gaining momentum in Australia (we’ve seen it first-hand!) and fast becoming an attractive way for companies to improve their financial position and optimise supply chain performance.

What is dynamic discounting?

Dynamic discounting is a solution where suppliers are offered early payment on their invoices, at any point once an invoice is approved, funded by the buyer. It uses surplus cash to pay suppliers early at discount, generating greater returns on capital. Through the use of a technology platform, dynamic discounting creates flexibility and control for suppliers and provides meaningful improvement to gross margin for the buyer.

Who should consider dynamic discounting?

Large businesses all have suppliers who want to get paid earlier and in a low interest environment, there are opportunities to do more with unutilised cash in the bank.  If there is excess capital, dynamic discounting is a great investment option, whilst also benefitting from strengthening supplier relationships.

Who is the target?

Our experience shows that the most successful way to get started is to focus on the tail-end of the supply chain, as these suppliers are the ones with the greatest need for financial support. The level of discount offered can be adjusted depending on supplier spend or size to generate the maximum return on deployed cash and greatest utilisation of the program.

What will the suppliers think?

They will love it. It’s an attractive way for the supply chain to improve cash flow without taking on any additional debt. Early payment programs offer a lot of flexibility and the option for suppliers to get paid quicker.

What is the benefit of a technology platform?

Using a platform to implement your early payment program will eliminate the administrative burden and enable it to be offered to hundreds or thousands of your suppliers, easily.

Timelio offers a seamless software integration, including automated onboarding of local and international suppliers, intelligent insights, reporting and customer support. This takes out the hassle of managing early payment discounts andprograms can be up and running within weeks.

Want to get started? Give us a call on 1300 38 63 63 to speak with one of our experts or email
to arrange a demo of the Timelio platform.

 

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