B2B Payments Get Dynamic

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A buyer/supplier relationship is as complex as any other kind…so why don’t trade programs offer the flexibility that reflects that? They can — if they apply dynamic discounting. Scot Sasser, Senior Director of Commercial Services at TSYS, recently spoke with PYMNTS about the payment methodology that is driving B2B towards a more robust future.

PYMNTS:  The global financial crisis has forced organizations to really take a look at how they were doing business, in particular ways to reduce costs and improve cash flow. In this context, dynamic discounting has been gaining popularity as the earlier the buyers pay their invoices, the greater the discount.

Can you provide us with a brief overview of dynamic discounting and how it is being leveraged in today’s economy?

SS:  Our industry is trying to move commercial commerce from what has been a traditional, inefficient, costly and manual process to more modern, electronic means.

To facilitate this movement, we need the flexibility to adjust for dynamic trade terms that are really transactional and relationship-driven.

Each and every buyer/supplier relationship has its own trade terms. To accommodate that reality, our industry needs to be able to assign rates to transactions based on a variety of complex factors — such as the number of days that have passed since invoice presentment, transactional volume and transaction size, among others.

Dynamic payables discounting takes these factors into consideration and allows flexibility for buyers and suppliers to process transactions based on the terms of a particular trade. This differs from the generic trade programs that do not allow flexibility to navigate relationship-based and business-based agreements.

To continue growing business-to-business payments, we need to leverage dynamic discounting to open new channels for ePayable exceptions, and address suppliers’ needs for agility in discounting receivables.

PYMNTS:  How would you compare interchange versus dynamic discounting?

SS:  They’re similar in that they both reward specific actions or behaviors from buyers or sellers. But the biggest difference, from our perspective, is that dynamic discounting allows the buyer and supplier flexibility to define rates within a program, as opposed to rates being defined solely by a central entity.

PYMNTS:  Is flexibility in trade terms the next wave of B2B payments growth? What other trends have you observed in that respect?

SS:  That’s a great question. There seems to be one central theme that will drive the next wave of B2B growth and future trends — and that’s value to the supplier.

We’ve driven value to issuers, buyers and acquirers through our technology and innovation. However, the main obstacle to acceptance by and enrollment of a supplier still remains the simplest: It’s too expensive. While driving value to everyone else, we have in many ways fallen short on producing value for the driver of the model itself.

Flexibility in trade terms provides the supplier some control over the model. I think future innovation will stick with the main theme of driving more value to suppliers, and increasing their acceptance and enrollment. We certainly see a day when suppliers will dictate more of the environment in which they’re willing to play, and future trends will certainly have to accommodate this shift in the value proposition.

PYMNTS:  As you mentioned, there are a number of complexities involved in a buyer/supplier relationship. What additional impact can dynamic discounting have in reducing those complexities?

SS:  Another great question — and it’s somewhat of a catch-22. Adding flexibility and varied in trade terms can, by definition, add more complexity to the model itself. But the result of trading that for more control is advanced growth through acceptance.

However, having flexible trade terms built into an automatic, electronic model can free up the manual processes that are in place today. Reconciliation and research, for example, can drastically be reduced even with the advent of flexible terms.

PYMNTS:  Do you see suppliers fighting back by raising prices when buyers use dynamic discounting?

SS:  Quite the opposite.

One of the reasons for dynamic discounting is to allow suppliers to negotiate terms. In fact, we see suppliers raising prices as a result of not being able to have control over their terms. Either that, or they simply refuse to move to electronic methods altogether.

Dynamic discounting lets suppliers negotiate pricing to maximize the value for their specific needs, thus reducing the need for prices to be increased.

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