Dynamic Discounting
A program where buyers offer to pay invoices early in exchange for a sliding-scale discount from the supplier.
Definition
Dynamic discounting is a flexible early payment program where the discount rate adjusts based on how early payment is made. Unlike fixed terms like 2/10 Net 30, dynamic discounting offers a graduated scale—the earlier the payment, the larger the discount. It uses the buyer's own cash rather than third-party financing.
Why It Matters
Dynamic discounting turns AP into a profit center. Buyers earn returns on excess cash that exceed money market rates, while suppliers get faster access to working capital without traditional factoring costs.
Examples
Sliding scale discount
On a Net 60 invoice, pay on day 10 for 2% off, day 20 for 1.5% off, or day 30 for 1% off.
Annualized return
A 1.5% discount for paying 30 days early on a Net 60 invoice yields a 18.25% annualized return.
How Nexus AP Helps
Nexus AP identifies invoices eligible for dynamic discounting and calculates the optimal payment date for maximum return on your available cash.
Start Free TrialFrequently Asked Questions
How is dynamic discounting different from supply chain finance?
Dynamic discounting uses the buyer's own cash, while supply chain finance uses a third-party funder. Dynamic discounting is simpler but requires available cash.
What return can you earn with dynamic discounting?
Returns typically range from 10-36% annualized depending on the discount rate and timing, far exceeding typical money market or investment returns.
Category
coreReady to automate your AP?
See how Nexus AP can transform your accounts payable process.