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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Dynamic discounting

What is dynamic discounting, and how is it different from supply chain finance?

ONE OF 366 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Dynamic discounting is an arrangement in which a buyer pays its suppliers' invoices early out of its own cash, in return for a discount that shrinks the closer to the due date the payment is made. Paying a US$100,000 invoice 30 days early at an annual rate of 12% earns the buyer about US$1,000. Unlike supply chain finance, no financier is involved and the buyer's creditor balance falls rather than stretching, so a lender to the buyer reads it as surplus cash put to work, and a lender to the supplier as a cost of being paid sooner that sits in the margin line.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

An early settlement discount is a fixed discount a seller offers on its own invoices; dynamic discounting is offered by the buyer, usually through a platform, and the discount varies with how early the invoice is paid.

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