How to Take Advantage of Early Payment Discounts and Remain Cashflow Positive
Regardless of what industry you are in, early payment discounts are a proactive way to reduce your costs on the Accounts Payable side. Many businesses are faced with the preservation of cash dilemma. What if you had a strategy to take advantage of the power of early payment discounts while remaining cashflow positive?
Taking a blended approach, you can break the cycle by offering early payment discounts for your own customers' accounts receivable. This is a proven way to minimize late payments while increasing customer loyalty. And in some cases, early payment discounts can be used as a closing tool for your sales team.
When you get paid early, you can then reallocate the funds to lower your costs on the AP side.
Now the trick here is to give discounts that are less than what you are receiving from your supplier and timing the terms such that they are shorter than your suppliers.
Everyone wants to save money, right?
Many suppliers offer discounts for paying their invoices promptly, but many companies forgo the discount for a number of reasons.
They believe that they don't have the financial strength, need the working capital, or simply don't have the tools in place to identify and take advantage of such discounts.
However, when you get paid early it increases your ability to pay your supplier early, you get a discount passed to you, and most importantly, your supplier has the funds to help keep inventory moving your way. A true win-win-win situation for all.
After all, a healthy supply chain keeps you in business. Read Also How to Use Inventory Management Software to Keep Suppliers Happy
Here's an example of how to leverage Early Payment Discounts:
You order some product needed for a project for your customer. The terms given to you by your supplier are 3/15 net 30. This means that you get to deduct 3% if you pay your vendor in 15 days instead of the normal 30 days.
In turn, you offer your customer 2/10 net 30 based on their invoice date, which gives them an incentive to pay you early, gives you time to turn around and pay your vendor early and everyone wins.
If your Accounts Payable system is not equipped to handle this, or you don't have an efficient way of offering and tracking early payment discounts for your customers, then consider this.
Windward System Five on Cloud has tools for Early Payment Discounts on the AP and AR side. The best part is that it will automatically do all of the accounting appropriately in the back end.
AP Discounts Ledger as a Cost of Sales and Early Payment Discounts as a reduction to income and so on.
You can offer discounts based on statement date OR invoice date. You control this discount at the customer level and with a little form design, it can be prominently communicated via their custom statement or invoice.
For more info on how to get paid try reading Tips to Reduce Accounts Receivable Outstanding
Windward's Early Payment Discounts function is included in your Windward System Five on Cloud subscription.
|Windward clients, please contact your Account Manager to talk about a Professional Services plan for advanced help setting up the Early Payment Discounts. +1 (800) 633-5750|
Or you can start by checking out this webinar where we will discuss using Early Payment Discounts (AR and AP) along with setup and configuration. There will be a live demo with examples and a quick Q & A will follow.
This Windward Solution Series video covers some tips for getting paid and reducing your accounts receivable. For more Solution Series Videos please consider subscribing.
If you are not yet a Windward client, one of our Business Developers would be happy to talk to you about your current business challenges and see how Windward System Five can help.
Please reach out at +1 (800) 633-5750