Supply Chain Finance: Modelling a Dynamic Discounting Programme
In the last 10 years, new financing opportunities (known as "Supply Chain Finance" or SCF) arose, exploiting the strength of new ICTs and supply chain links to optimise the working capital and create value for the organisations involved. One of the solutions within the SCF landscape, called Dynamic Discounting (DD) utilises trade process visibility granted by an ICT platform to allow the dynamic settlement of invoices in a buyer supplier relation: for every day of payment in advance with respect to a predefined baseline, the supplier grants to the buyer a discount on the invoice nominal value. DD is a supply management tool for which a cash rich anchor buyer can let suppliers (especially SMEs) fast access cash, while gaining a relatively high rate of return. This paper aims to estimate, through the development of an analytical model, the potential benefit sof using a DD model in a buyer supplier relation. After a brief review of relevant literature, the paper presents amodel that compares, for the supplier, the cost of granting a discount to the buyer with the benefit of an early payment, whereas for the buyer, the benefit of receiving a discount with the financial cost of an early settlement. This paper fills the gap in literature related to the definition of the processes underlying the adoption of DD, and more broadly the need for models to assess the benefits of the most innovative SCF schemas.