Great ideas and innovative products start businesses. But more often than not, it’s the relationships they have built with their customers that will ensure their continued success and growth.
So how can SMEs translate these ‘soft’ skills into hard cash? Dynamic discounting may seem like all the advantages are stacked in the favour of the buyer of the goods – in that by paying earlier, they can pay at an agreed discounted rate – by adopting this payment method, there are a number of advantages for the SME supplier.
Firstly, for an organisation that often finds itself financially squeezed, they can expect a much healthier cash flow. Small businesses are most likely to be exposed to increasingly unfair payment terms by their commercially heavyweight customers. Dynamic discounting redresses the power in the relationship with a directly beneficial result on the bottom line of both parties.
Secondly, the alternatives are hardly attractive. Factoring – where a third party effectively buys your accounts receivable and gives the business a cash advance based on those unpaid bills – is commonly used in businesses where an immediate cash flow is necessary to operate day to day (for example staffing), but is also an indication of a company has been denied loans from more traditional routes, such as banks. While it might seem a good idea to free up the resource you would allocate to collections to more front-end business activities, for fast-growing businesses this actually means a significant decrease in control and flexibility. Factoring often usually comes at a higher cost than most loans and the factoring partner can even govern who you do and don’t do business with, based on the buyer’s credit history.
So by leveraging their key strength – their relationship with their customers – through dynamic discounting, SMEs can access the much-needed capital at a fraction of the cost.
Taulia have been providing dynamic discounting to a variety of organizations for a number of years – check out their website for more information on how this solution can change the way you do business.
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