B2B Trade Finance: Dynamic Discounting Software & Supply Chain Payment Solutions for B2B eCommerce

Since there’s always a need for working capital, B2B ecommerce platforms that choose to integrate trade finance solutions solve multiple finance issues on many levels for both suppliers and buyers.

While suppliers spend time and money creating products for shipment, buyers wait for those products to arrive to convert them into cash for their business. The wait time on average is six months, meaning that businesses, while waiting on cash flow, typically miss out on opportunities that would have otherwise contributed to their growth and development. Supporting suppliers with early payment solutions will help address those issues and reduce the likelihood of disruptions to the business.

The trade finance options we’ll discuss in this article are not exclusive to B2B marketplaces – they can be used in any B2B ecommerce solution.

Types of Early-Pay Solutions: V-Cards, Dynamic Discounting, and Supply Chain Finance

There are several types of early payment solutions that you can offer your suppliers: virtual cards, dynamic discounting programs, and supply chain finance. We’ll go through each in more detail below.

Virtual cards

Virtual cards or v-cards, although a relatively new phenomenon, have been growing across many industry verticals, including manufacturing, government, healthcare, and insurance. Despite card payments being predominantly a feature of B2C commerce, B2B card solutions have also been gaining traction.

A virtual card is assigned a unique card number, which is generated on-demand online. V-cards can be used for essentially any category of expenditure, with multiple ways of controlling a transaction and its automation.

Because virtual cards can be easily integrated with third-party business tools, such as “procure-to-pay” systems, buyers benefit from the transparency of their spending. They can efficiently and effortlessly track payment flows and other related data like invoice numbers and cost centres. Such visibility greatly facilitates the accounting reconciliation of payments.

Moreover, virtual cards are often accompanied by deferred payments, which help both parties avoid resorting to alternative financing solutions like factoring. This way, buyers have an opportunity to reduce their need for working capital, while suppliers are guaranteed to be paid earlier.

Dynamic discounting

Some accounts payable automation vendors offer dynamic discounting as part of their B2B ecommerce software solutions.

What is dynamic discounting?

Dynamic discounting is a collection method that gives suppliers the flexibility to collect payments from buyers earlier than the due date in exchange for a discount. The discount rate is typically a sliding-scale annual percentage rate (APR), which varies based on the payment date. Otherwise, the supplier can define discount tiers based on when the buyer chooses to pay.

How does dynamic discounting work in ecommerce?

As mentioned, dynamic discounting allows businesses to receive discounts on invoices if they are paid early. This type of financing can be used in a variety of situations, but it is particularly useful for B2B ecommerce transactions where there are often long payment terms. By offering a discount for early payment, businesses can free up cash flow and improve their overall working capital position.

There are a number of different dynamic discounting software solutions on the market, but they all typically work in a similar way. Businesses upload their invoices into the system and see the early payment discount that is available for each invoice. The businesses can then choose which invoices they would like to pay early and receive a discount on the total amount. The solution defines the discount tiers based on the buyer’s preferred payment date.

For example, if the first tier is a term of 4% 10 Net 30, it means that if the buyer pays the invoice by day 10, they can deduct 4% from the invoice price. Similarly, if the second tier is 3% 20 Net 30, it means that if the invoice is paid by day 20, the buyer can deduct 3%, and so on.

Unlike supply chain finance (which we’ll discuss in more detail in the next section), in dynamic discounting, buyers finance suppliers by enabling them to receive funds earlier on their terms. Likewise, suppliers choose the invoices they want to accelerate and how early they wish to be paid.

Some source-to-pay vendors, such as Taulia and Basware, extend their trade finance options to include third-party funding solutions, commonly referred to as supply chain finance.

Benefits and features of dynamic discounting software solutions

Dynamic discounting software solutions offer a number of benefits. Below are some of the key advantages:

  • Makes it simple to upload invoices and take advantage of early payment discounts;
  • Automates payments ensuring buyers never miss a payment and always receive a discount;
  • Helps businesses to improve their working capital position as more cash is brought into circulation;
  • Improves supplier relationships;
  • Make it easy to manage discounts and streamlines B2B ecommerce operations.

Dynamic discounting software typically offers the following features:

  • Supplier activation: an integral part of any supply chain and discount management initiative that offers a number of tools to choose suppliers to invite to the program, activate and onboard suppliers;
  • Automation and analytics: an essential component that gives a complete view of discount opportunities and automates routine tasks to streamline discount and invoicing workflows.
  • Dynamic discounting: a module that gives opportunities to decide which discounting method to apply, such as automatic or on-demand (like on an invoice-by-invoice basis).

Supply chain finance

Supply chain finance represents bank-funded early payment solutions, in which buyers pay the invoice at maturity to the bank’s remit-to account. Supply chain finance is typically accompanied by a terms extension program, which allows buyers to enhance their working capital by improving ‘days payable outstanding’ and suppliers by accelerating their receivables at a much lower cost of capital.

What is a supply chain finance program?

A supply chain finance program is a software solution that provides early access to working capital by embedding the lending component in the order process. Supply chain finance solutions are aimed at minimizing financing expenditures and improving the efficiency of business processes. Such solutions connect various parties involved in a transaction, such as buyers, suppliers, and financial institutions.

Benefits and features of a supply chain finance program

There are many advantages to supply chain finance:

  • Optimisation of working capital: by getting paid earlier, suppliers extend payment terms for buyers and increase their own cash on hand.
  • Improvements in financial forecasting: early payments enable suppliers to better forecast future cash flows.
  • Low-cost access to capital: the higher the credit of the buyer, the lower the working capital cost for the supplier.

Utilising supply chain finance software programs also has its benefits as it automates the lending/borrowing operations. Such software helps companies control the entire payment process, thereby alleviating monetary risks and improving collaboration between suppliers and buyers.

Before we move on to the most common features pertinent to supply chain finance programs, let’s look at a typical workflow in supplier finance operations.

The typical supply chain finance workflow includes the following stages:

  1. The supplier issues the invoice of provided goods/services to the buyer and sends it to the financial institution’s supply chain finance platform.
  2. The buyer approves the invoice using the same platform.
  3. The financing institution releases the payment against the received and approved invoice.
  4. On invoice maturity, the financial institution debits the payment from the buyer’s account.
  5. Financial institutions can leverage the supply chain finance platform to quote their bids on the factoring units and allow sellers to choose the most suitable bid.

Supply chain finance platforms should be able to allow financial institutions to define the complex workflow of the purchase order or invoice validation, buyer limits, and supplier limits.

To streamline the supply chain finance workflows and ensure consistency across channels without disruptions, a supply chain finance program needs to become a single point of record that unites both traditional trade and contemporary supply chains on a single platform in a unified interface. To do that, it needs to seamlessly integrate with critical internal and third-party systems to provide a holistic view of finance operations.

The above said leads us to the basic functionality to look for in a supply chain finance platform:

  • Streamlined onboarding and customisable workflows.
  • Integration with compliance and other critical systems and processes.
  • Risk management with access levels, permission controls, departmental limits, risk distribution modules, and so on.
  • Automated document processing, validation of checks, factoring reporting.

Examples of Dynamic Discounting Software & Supply Chain Finance Solutions

If you’re looking for dynamic discount solutions or reverse factoring software or both, the below suggestions will help you get started.

Taulia dynamic discounting platform & supply chain solution
Founded in 2009, Taulia was among the first technology-enabled dynamic discounting solutions that, having been amply infused with capital, grew very quickly, so that by 2019 the company had more than 1.8M supplier connections and $500B worth of transactions going through its network. In 2022, when SAP acquired a stake in the company, Taulia joined the SAP family.

Although a part of the German multinational, Tulia continues to function as an independent provider. During its market presence, Tulia has garnered multiple awards, such as Best Leadership Team 2020 by Comparably and Best Supply Chain Finance Provider by the Global Banking & Finance Awards 2020.

Taulia’s dynamic discounting & supply chain finance is one of the best solutions on the market that allows for greater flexibility between different funding approaches as market requirements change. This way, businesses can add or switch from dynamic discounting to 3rd-party funded supply chain finance without disrupting day-to-day operations. Besides typical functionality, Tulia boasts its predictive analytics and artificial intelligence capabilities that, according to the company, have had a hugely positive impact on the solution’s implementation. Tulia’s AI models can predict the best terms and rates to offer and the probability of early payment acceptance in different scenarios, among other things.

Basware finance platfrom with dynamic discounting and supply chain finance
Our review of the best trade finance software would be incomplete without mentioning Basware. Basware is one of the most well-known providers of business solutions that automate finance and procurement processes. Basware is a cloud-based software-as-a-service (SaaS) that’s trusted by over 9,500 businesses in more than 70 countries. Basware Procure-to-Pay (P2P) solution automates the entire procurement process from point of order to payment.

The software’s strongest features are its accounts payable automation and open commerce network, which includes over 220 interoperability partners and automatic global compliance in more than 50 countries. Needless to say, the Basware software supports dynamic discounting and supply chain finance early payment options.
Tradeshift supplier financing and discount management software
Tradeshift is a cloud-based business network, a market leader in e-invoicing and accounts payable automation, and a trade technology platform. The Tradeshift network provides a gateway for multiple services that combines procurement, payables, finance, analytics, and collaboration. Apart from supply chain finance and dynamic discounting, Tradeshift also supports virtual cards.
Traxpay supply chain financing platform & dynamic discounting solution
Traxpay financing platform offers all the usual financing programs, allowing companies to switch between financing instruments depending on market requirements or business needs. With the Traxpay financing solution, companies have access to all relevant forms of financing such as dynamic discounting, reverse factoring, and factoring. Traxpay boasts a diverse ecosystem of financial institutions and other partners that, apart from sources of income and funding, offer value-added services, such as sustainability ratings and blockchain technology.
GEP digital procurement & B2B supply chain platform with financing capabilities
GEP is an intuitive, AI-powered, cloud-native solution that unites different components of supply chain management under one roof: sourcing, financing, payments, demand planning, logistics, and warehousing. GEP SMART, in particular, automates discount management. By combining AI algorithms, GEP tracks the entire supplier engagement cycle and notifies the accounts payable team about upcoming payment-driven savings opportunities. Such precise and timely automation not only contributes toward the company’s savings goals but also boosts transparency and visibility into outstanding obligations. Other GEP SMART features include eInvoicing, invoice reconciliation and validation, and exception handling.

Dynamic Discounting vs. Supply Chain Finance Explained: Which Model to Choose?

As we have clearly seen, there are a lot of benefits to using early payment solutions. If you’re a buyer, then choosing between the two trade finance models depends on your current financial position, business requirements and long-term goals. Do you have excess cash that you can use to finance your supplier while boosting profitability? Or do you want to have greater access to working capital by increasing days payable outstanding? Obviously, if you have extra cash, you’d better use it now to save on discounts. On the other hand, if you prefer to have cash on hand and enjoy longer payment terms, then using supply chain finance makes better sense.

Now, if you’re a supplier, it’s best to be able to have both options on hand. One way to go about it is to work with two different providers, each offering either dynamic discounting or supply chain finance solutions.

With that said, having two separate providers is not always efficient — it requires separate provider agreements, which might result in a disjointed user experience.

The other option is to work with a single provider that offers both third-party and buyer-funded solutions. This way, suppliers can offer both types of finance on a single platform without having to toggle between different solutions.

The benefits of using two models are significant:

  • For buyers with seasonal demand fluctuations, dynamic discounting can help employ loose cash, improve gross profit margins during demand peaks, deploy cash elsewhere, or switch to third-party funding during troughs.
  • Using two models helps streamline the onboarding process for suppliers of all sizes and enables them to have a simple cash-collection experience with relatively predictable cash flows.

Conclusion on Choosing the Right Model: Dynamic Discounting or Supply Chain Finance

Making use of both supply chain finance and dynamic discounting will ensure your supply chain’s health across different economic cycles. Fortunately, there are solution providers that can guarantee the seamless employment of both models. The only thing you need to ensure is the flexibility of your marketplace B2B ecommerce platform and its ability to integrate with different third-party solutions easily.

Apply for a Demo of a B2B eCommerce Platform That Seamlessly Integrates Trade Finance Solutions

For both supply chain finance and dynamic discounting to work, you need to have a robust ecommerce platform that can seamlessly connect to third-party systems.

Virto Commerce is one such platform: it’s API-powered, cloud, headless, composable, extendable, and fully customisable to meet your particular business needs. With Virto Commerce, you can add any value-added services you want, including different ecommerce finance solutions.

Virto Commerce also has a full-fledged standalone solution for B2C and B2B trade marketplaces, Virto Marketplace.

Virto Marketplace is a composable marketplace solution that supports both first and third-party marketplace models and connects to virtually any existing ecommerce solution without replatforming. Virto Marketplace can also be easily extended to offer additional services, including trade finance.

If you want to learn more about the Virto Commerce ecommerce platform or marketplace solution and how both can help you to provide early payment solutions to your customers, schedule a demo now!

FAQ

Does your business need a dynamic discounting solution?

Dynamic discounting can be a valuable tool for businesses looking to improve their working capital position and give their suppliers all the benefits associated with early payments. With that said, by participating in dynamic discounting, businesses reduce the prices of products sold, which might affect profitability. If having cash on hand is a priority, however, then dynamic discounting offers sound means of achieving it. 

What are the benefits of dynamic discounting solutions for a buyer?

There are a number of benefits to dynamic discounting for buyers, such as a larger return on investments, increased working capital, and improved relationships with suppliers.

How does dynamic discounting differ from other solutions?

Dynamic discounting is a form of supplier financing that enables you to pay early in return for a discount. In dynamic discounting, there are no third parties, but your company and a supplier. Supply chain finance, or reverse factoring, on the other hand, is a form of financing that involves a third party, such as a bank, that pays the suppliers’ invoices on your behalf.

How do you use supply chain finance?

Supply chain finance is a type of trade finance that can be used to improve working capital. This type of financing is typically used to pay suppliers early, and it can be a valuable tool for businesses that have (or want to have) long payment terms. In supply chain finance, the supplier issues an invoice to the buyer who, upon approval, sends it to the lender. The supplier gets paid by the lender first, and then, when the payment is due, the lender gets paid by the buyer. This is a viable scheme for businesses that want to extend their payment terms through a third party without negatively affecting their suppliers. 

How much does supply chain finance cost?

The cost of supply chain finance will vary depending on the provider and the terms of the financing. It is important to compare different providers before making a decision, as there can be a wide range of costs associated with this type of financing. 

What are supply chain finance interest rates?

While some industries might be attractive for lending institutions, making working capital funding both available and cheap, others are not so due to compound risks associated with such industries. For this very reason, advertised headline interest rates of 5-10% can easily turn into 20%.

Does your business need a supply chain finance program?

All businesses need financing, so providing the availability of early payment solutions has its benefits. Overall, supply chain finance reduces supply chain risks by supporting suppliers with affordable financing and allowing buyers to extend their payment terms.

How does the supply chain finance program differ from other solutions?

Supply chain finance connects at least three parties, such as buyers, sellers, and financial institutions. Dynamic discounting, however, doesn’t resort to any third party and is based purely on businesses’ own freely available resources.

What are some well-known providers of ecommerce finance solutions, including dynamic discounting and supply chain finance?

There are a number of different providers of ecommerce finance solutions, and it is important to compare features and prices before making a decision. Some well-known providers of dynamic discounting and supply chain finance include TradeShift, Taulia, and Basware. 

What is the best ecommerce platform to integrate with trade finance solutions?

The best ecommerce platform to integrate with trade finance solutions will vary depending on the needs of your business. It is important to compare different platforms before making a decision. With that said, we think Virto Commerce is an ideal solution for ecommerce because it’s a fully adaptable platform that can incorporate any third-party service, including finance options.

Schedule a quick demo

Marina Conquest
Marina Conquest
linkedin icon Technical author and eCommerce advocate