This tool is an alternative to factoring.
On 31 January 2018, PAO Magnitogorsk Iron and Steel Works (PAO MISW), one the Russia’s largest metal works, had the first official early-pay transaction with one of its suppliers through the Dynamic Discounting Platform of an early-pay bonus developed by KPMG.
The introduced dynamic discounting tool is based on the early payment concept: the earlier the buyer pays, the greater bonus may be paid for it. This platform enables preparing documents for the purposes of legal support of such transactions with all necessary information filled in the system and uploading these documents in the electronic document management system (EDM). Both the buyer and the supplier are connected to EDM, which substantially expedites and systematises the early-pay bonus processing. As a result, business gets the chance to go beyond the operational cycle and invest the funds that may become available into further development.
“We see the Dynamic Discounting Platform-based settlements with suppliers as an alternative to using factoring for suppliers without a bank or factor as an intermediary, and as an opportunity for PAO MISW to increase return on short-term placing of temporarily free cash,” Maria Nikulina, Head of Finance Resource Management Department, Board member of PAO MISW, comments.
“We estimate that this tool will bring additional risk-free return on short-term investment. This is beneficial for both the buyer and the supplier. As a matter of fact, they will essentially share the margin of a financial intermediary, i.e. the bank or the factor,” says Roman Malyuga, Partner, Head of Treasury, MC, KPMG in Russia and the CIS.