Cash & Working CapitalTechnology

Smoother Sailing: The Benefits of Dynamic Discounting

By January 30, 2020No Comments

How C2FO’s solution helps one company’s treasury team smooth its cash flows.

Successfully adopting dynamic discounting (DD) to execute early payments requires internal alignment across multiple functions in a corporate’s organization—as well as finding the right vendor and solution. However, the technology’s many benefits, including smoothing out cash flow for both the company and its suppliers, provide a persuasive argument.

A treasury executive from a major technology company explained her firm’s challenges and the benefits of implementing C2FO’s DD platform at a recent NeuGroup meeting sponsored by the Kansas City-based fintech.

The biggest challenge. The member said that aligning top executives internally was probably the most time-consuming aspect of the adoption, noting that there were multiple areas and teams impacted whose cooperation was critical. Besides the initial IT investment, the implementation required changing the company’s procurement and accounts payable processes.

  • The assessment and ultimately the recommendation to adopt C2FO were made by an executive committee comprising representatives from finance, treasury, IT, supply chain, procurement, and credit and collection. Ultimately the company’s CFO signed off on the project.

Three choices. The company considered employing the traditional discounting model, in which vendors receiving early payment within a certain number of days would accept a specified discount. Also contemplated: a sliding-scale model that tied the discount percentage to how many days early the vendors were paid.

  • Those approaches typically require extensive negotiations with suppliers and allow limited flexibility. The company chose the dynamic-discounting model, which lets it define the amount and timing of cash it deploys into the program and enables vendors to bid on the discount percentage they are willing to provide.

Smoothing out cash flows. The flexibility of the C2FO platform allows the company to better manage its cash flows, making the model especially attractive given the transactional, potentially volatile nature of the company’s business.

Benefits across the company. Treasury’s DD benefits include a risk-free investment opportunity, optimizing working capital and payment-term extensions. In addition to being a tool highly leveraged by treasury, there were benefits in other areas too:

  • Procurement: Stronger supplier relationships; standardized processes and payments; no more negotiating one-off discount terms.
  • IT: Minimal support required; a secure SaaS platform; easy user experience with minimal training; operations on multiple ERP systems.
Antony Michels

Author Antony Michels

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