Supply chain finance is sometimes mistakenly referred to as reverse factoring or dynamic discounting, which are two different approaches to early supplier payments.
Supply chain finance is a buyer-led solution, often referred to as reverse factoring, that allows distributors to receive a prepaid invoice through third-party financing. By offering your vendors the option for upfront payments, you can strengthen your supply chain, improve B2B relationships, and lower the risk of business disruptions.
Dynamic discounting, on the other hand, enables buyers to use their own excess cash to pay distributors early in exchange for a discount on the invoice amount. The earlier the payment is made, the greater the discount. This method offers buyers a low-risk return on idle resources while giving suppliers flexibility to access funds when needed.
So, how should you determine which option best suits your organization? The most effective approach is to leverage both. This is where an adaptable funding model comes in. Read on to learn how it allows you to enjoy the benefits of both dynamic discounting and supply chain finance.
Dynamic or Third-Party? Let Flexible Funding Decide
Flexible funding sits at the intersection of supply chain finance and dynamic discounting. It helps buyer organizations access the right funding when they need it most. This feature gives corporate treasurers different options to manage short-term cash flow needs while helping source companies keep their cash flow healthy. Easy access to money helps ensure that the program performs well.
A recent update to this feature allows customers to switch easily between using their liquid resources in dynamic discounting and third-party financing options (through supply chain finance) for making early payments. Flexible Funding 2.0 uses a customer’s set liquidity limits to automatically choose the best funding source for each invoice.
Eliminating the Either-Or of Early Payment Funding
Businesses must understand that their cash needs can change throughout the year to grasp how Flexible Funding 2.0 works. When your team looks at vendor requests for upfront payments, they should see clear low points at certain times. Both suppliers and buyers have constant cash needs.
Banks and other financial institutions usually handle these requests in a system called supply chain finance. However, if a buyer decides to use their extra cash for prepaid invoices, they might be:
Taking money from the organization, which reduces the funds that the finance team could use to improve cash flow in the short term.
Limiting how much they can finance early payments during times when distributors need money the most.
Organizations shouldn’t have to choose between limiting their cash options or risking future profits. With Flexible Funding 2.0, they can easily switch to third-party funding to make priority settlements to suppliers whenever they have enough liquidity.
When Cash Flow Shifts, Funding Should Too
Flexible Funding 2.0 benefits a buyer’s cash-flow needs. Here’s how:
Cash conservation tool: Buyers often experience different needs and must manage their money wisely. For instance, a corporate treasury can change figures on the balance sheet and improve Days Payable Outstanding using an on-demand liquidity plan. On the other hand, some companies choose to use extra money by making early payments to suppliers. This is a safe and efficient way to invest their money.
Return optimization: Buyers want to get the most returns from prepaid invoices. Agile financing allows them to meet supplier funding needs with reliable liquidity. This helps maintain high discount rates because source companies trust that the cash will be available.
Financial optionality: With Flexible Funding 2.0, buyers can set Liquidity Limits. This lets them benefit from self-funded early payments while also freeing up the working capital needed for the business.
In a true win-win fashion, Flexible Funding 2.0 also supports suppliers by offering:
Consistent cash flow: Timely payments are crucial for vendors who need a reliable stream of money to serve their customers. However, that is not always the reality. So, with a more flexible option, businesses can be confident that their funds will not run low. You can get financing whether you choose to pay for it yourself or use a third party.
Improved partnerships: A recent Taulia survey shows that 50% of suppliers face late payments from clients. These delays frustrate distributors and can make it harder for them to work closely with clients, even when conditions are right. Consistent cash flow helps build relationships based on trust and mutual benefit.
Promoted growth: Uncertainty often hinders business planning, causing operational scaling strategies to be delayed or difficult to implement. With Flexible Funding 2.0, suppliers can trust their liquidity, giving them the confidence to create and follow through on growth plans.
Why One Size Doesn’t Fit All in Early Payments
Many people think that preferring an upfront transaction means deciding between supply chain finance and dynamic discounting. This view has been common in the industry for years. However, relying on only one of these methods may not be the best choice.
Your business needs and economic conditions can change quickly. This means what works for you now might not be suitable in a few years. If your business also has seasonal changes, you may need to use both models at different times of the year.
If you choose one model, you might end up with a solution that doesn’t meet all your needs or one that can’t adapt as your business grows. One option is to work with two different providers to use both models, but this can be inefficient.
Managing multiple agreements with different providers can be complicated. Suppliers may have inconsistent experiences, and moving them between solutions can be impractical, leading to dissatisfaction.
Fortunately, you don’t have to limit yourself to just one option. By using both supply chain finance and dynamic discounting, you can offer your distributors flexible funding choices.
One Platform. Two Funding Paths. Zero Disruption
Many providers offer a flexible funding solution that allows you and your suppliers to use both third-party financing and self-funding for early payments. This means you don’t have to choose between the two options.
With a flexible funding model, companies can use one priority settlement platform to access both types of financing. This is made easy by allowing a smooth transition between funding methods, so vendors don’t have to re-enroll or remember multiple tokens or passwords.
Instead of being limited to one model, you can switch between different funding sources based on your business needs. This all happens without disrupting your suppliers or your internal processes.
Prepaid Invoices Without Barriers
A flexible finance model helps by eliminating the need to treat large and small suppliers differently. Most priority settlement solutions have complicated onboarding processes. This can stop small and medium-sized vendors from participating, limiting the solution’s benefits across the supply chain. Small and medium-sized enterprises often struggle to get funding from banks and would gain the most from these programs.
In contrast, a flexible funding initiative with a simple onboarding process can help all source companies, regardless of their size. All enterprises seek a simple cash-collection system that provides a steady influx of money and attractive early payment options better than other financing choices.
Conclusion: Early Payment Flexibility Is the Future
Choosing between dynamic discounting and supply chain finance is no longer necessary. With a flexible funding model, you can offer both options through a single, seamless platform, matching your cash strategy to your business cycle while giving suppliers reliable, early access to cash.
Flexible Funding 2.0 enables smarter liquidity management, better supplier relationships, and broader program adoption across your supply chain. It removes onboarding barriers, simplifies decision-making, and ensures that early payment performance doesn’t suffer when internal or market conditions shift.
In today’s unpredictable economic environment, agility is everything. Flexible finance gives you the control to adapt and the confidence to support your supply chain—no matter what comes next.
