Deciding whether to offer discounts is a difficult business decision that can both help and hinder your business. Early payment discounts can be an excellent way to draw in clients, but you don’t want to lose out on making a profit. So, are they right for your business?
Early Payment Discounts in simple terms, is a discount offered to the client for paying the total invoice value early opposed to spreading out the cost and paying at a later date. It can be seen as an attractive deal for the client, but what are the pros and cons of your business, allowing Early Payment Discounts.
Benefits of Early Payment Discounts
Quick returns: It’s a great way for a business to make quick returns. Did you know that almost two-thirds of invoices issued by SMEs over 2017 were paid late? Early Payment Discounts are often a strategy for building up the momentum of sales. The deal draws in customers and brings in money much quicker than if your business allowed a long period of time to pay. It additionally enables a healthy cash flow and therefore increases working capital.
Reduce the risk: Earning capital quicker means you can mitigate supply chain risk. If you can always pay your supplier as early as possible, they are likely to become reliable and trusting. Therefore, you are less likely to slow down sales or disrupt the supply chain.
Customisation: Early Payment Discounts can be modified to suit your business. Sometimes deals can be negotiated. By offering to pay invoices early to the supplier at a discount, this goes to raising your profit. Similarly, offering a discount to receive payment early enhances your customer relationship.