Dynamic discounting is a variable early payment arrangement in which the discount rate slides in proportion to the number of days an invoice is paid ahead of its due date, instead of applying inside a single fixed window.
A fixed early payment discount is binary: pay by day 10 and take 2 percent, pay on day 11 and take nothing. Dynamic discounting replaces that cliff with a straight line. An invoice due on day 60 and paid on day 20 earns more than the same invoice paid on day 45, computed from an agreed annual rate applied to the days saved.
Dynamic discounting differs from reverse factoring on three points:
- the buyer funds the early payment from its own cash, not from a bank facility
- no receivable is assigned to a third party, so the commercial relationship is unchanged
- the offer is made invoice by invoice, and the supplier can decline without renegotiating its payment terms
The constraint is structural rather than financial. A discount can only be offered on an invoice whose amount is already approved, because an unapproved invoice has no confirmed base to discount. If approval takes 25 days on a 60 day term, the offer window is 35 days, and the buyer loses the steepest and most valuable part of the curve.
Phacet attacks that constraint upstream, matching and validating supplier invoices as they arrive rather than at month end. An invoice cleared on day 3 stays offerable across nearly the full term, which is also what shortens procure-to-pay cycle time.
