Large MNCs often have 000s of suppliers, many of whom are SMEs with liquidity problems which are holding them back and making the buying MNC’s supply chain insecure. No wonder the SMEs have cashflow problems when large companies in the Nordic region imposed payment terms of ‘this month + 90 days’, whilst SMEs often have payment terms of 10-20 days with their suppliers. 

It is no wonder then, the use of dynamic discounting to pay suppliers early, when they need it, is growing in popularity world-wide. The problem is that large companies and SMEs have different processes and also that they already have financing arrangemens with all sorts of banks and FIs, not just with Danske Bank.

To overcome these problems Danske Bank has developed their own unique DynamicPay Internet portal which functions as a bank independent platform aggregating the buyer approved invoices from suppliers, see figure below, and then making an early discounted payment, if required.

DynamicPay powered by Danske Bank 

Source & Copyright©2016 - Danske Bank 

Danske Bank had two aims in developing DynamicPay: 1) to provide a platform that integrates easily and as seamlessly as possible with existing standard processes and financing arrangements, and 2) to ensure that DynamicPay operates as integral part of Danske Bank’s current payment, cash management and trade finance solutions. 

As in all dynamic discounting platforms the buyer receives the supplier’s invoice, adds it to their ERP and then approves the invoice, and informs DynamicPay that the payment has been approved. Next the early discounted payment is made, if requested by the supplier.

In DynamicPay, Danske Bank focused particularly on the processes and structure involved in:

• onboarding suppliers and MNCs onto the service
• setting up a flexible bank independent financing so the buyer can use whatever financing arrangement they prefer
• easy day to day processes, e.g. use of ISO payment files, no change to buyer’s IT-infrastructure

to make the whole process as seamless as possible.

DynamicPay Onboarding

Onboarding:

• suppliers sign up is made as simple as possible by making it like signing up for an ‘app’ on a mobile phone, also there is no KYC involved because the supplier is not a customer at Danske Bank
• buyers - need to change their internal processes for approving payments and sending details immediately to DynamicPay.

DynamicPay takes the information - the amount, the due date, and if buyer has made an offer for early payment, displays it on the supplier’s account in DynamicPay. They also send an e-mail or an SMS saying that the invoice has been approved.

Flexible bank independent financing of the discounting  

The buyers need to set up an agreement with DynamicPay and an account at Danske Bank from which the out payments to the suppliers are made. The financing of the early payment is uniquely flexible and can be from:

• the buyer’s surplus cash
• another party, e.g. HSBC, Swed Bank, etc.
• Danske Bank. 

If the financing is from another bank or from the buyer, Danske Bank uses standard bank processes to collect the financing. They send a SWIFT MT 101 message before 12 noon on Day 1 from the buyer’s own bank asking for funds for the buyer to finance the early payment(s). (Danske Bank won’t make any payments to the supplier unless there are sufficient funds in the buyer account)

The discount prices offered are set by the buyer with Danske Bank suggesting the level of prices that are fair and reasonable. DynamicPay displays all discounts offered and suppliers can choose the one(s) that are best for them to take.

Buyers can change the payment discounted offer in real-time. So they can change the discount offer(s) or the payments offered for discount, if they suddenly have more surplus cash than expected.

DynamicPay Charges

If the buyer is funding the early payment, then there is only one charge - a percentage of the discounted amount - by Danske for facilitating the service.

If buyer needs external funding (from Danske Bank or elsewhere), there will also be a charge from the financing institution for providing the funding which could, potentially, increase the discount rate for the supplier.

Users

Danske Bank are now rolling out the service having launched it at the recent Money 20/20 Conference in Copenhagen. The first major user of DynamicPay will be Danske Bank themselves. By 15 May they will have put all their 11,500 suppliers onto DynamicPay. Danske Bank believes this will reduce their costs immediately as they will no longer have the admin of answering calls from 2,500 suppliers who regularly ring up asking when will they receive payment. Instead the suppliers will be able to find out direct from the DynamicPay portal.

Danske Bank expect that by June they will have five multi-national corporations in the Nordic region using DynamicPay for their suppliers.  

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CTMfile take: Danske Bank’s aim of putting the supplier in charge of his own liquidity is laudable and important. The DynamicPay solution provides most of the facilities that you’d expect today from a dynamic discounting programme. The key differentiators from other solutions are the flexibility of the financing, ease of set up and the minimizing of changes to the existing payments/collections systems. But, as always, service delivery is key, this will determine how successful DynamicPay is.