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Early Payment Discount in Receivable

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When and why you need to apply discount on account receivable? Go through this presentation that will brief you about the working and benefits of discount and how you can earn more profits.

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Early Payment Discount in Receivable

  1. 1. EARLY PAYMENT DISCOUNT IN RECEIVABLE
  2. 2. Early payment discount is offered by some companies to encourage their client/customer. The early payment discount is also referred to, as a prompt payment discount or cash discount.
  3. 3. Benefits of Discount in Receivable Immediate Cash Improve Profitability Avoid Penalties
  4. 4. ImmediateCash The most effective benefit of discounting in receivable is the receiving early payments. Instead of waiting 30-45 days.
  5. 5. ImproveProfitability When you use discount policy, you can improve quick pay pricing with their own supplier. Reduce the cost of future sale and improve profitability.
  6. 6. Avoid Penalties If a supplier is unwilling to provide a discount, pay them in the time frame and avoid the payment of interest or penalties. HOW TO ENSURE THE HEALTH OF YOUR ACCOUNTS RECEIVABLE FUNCTION?
  7. 7. How Much Discount Should You Give? Many service providers give early payment discounts such as 2/10, net 30. It means your client/customer gets a 2% discount by giving 10 days early payment.
  8. 8. Example:- An invoice of $1000 can settled if buyer pays $980, 10 days early. In this, buyer can also get $20 off if he/she pay 20 days early to the normal due date. If you give this opportunity to your client to make payment after every 20 days, than it will occur 18 times in a year. (365-20=18). In this buyer, will save upto $360 ($20x18=360)
  9. 9. Look it form another way. If the owner needs to borrow $980 from bank @6% per year, Interest, for 20 days will be $3.22. By paying $3.22 of interest to the bank, If this occurs 18 times in a year, the net annual savings will be approximately $301 [$16.78 X 18 times; or $360 per year saved minus the annual interest paid to the bank of $59 ($980 X 6%)]. A discount of 1% for paying 20 days early equates to an annual interest rate of approximately 18%.
  10. 10. What Works Best for YOU: Suppose A and B have different strategies to collect payments, A offers discount on cash payment where B offers discount on card payments. The difference is A’s customer often hand him a check immediately, whereas B’s customer doing slower accounting process that adds days to payment by check.
  11. 11. Batching the Payment to vendors Write checks to vendors on specified days of each month. To make account payable staff working effectively , Process the checks on the specified date of each month that are pre written, it discourage the need for “rush” checks.
  12. 12. Diverse your tasks to one of the premium Outsourcing firm that is Cogneesol, it’s the best accounting service provider since 9 years, to business ventures all over the world. By outsourcing your accounts receivable, our team of experts will help you to plan discount strategies, so that you can recover your amount and reduce the risk of loss, that will result in earning more profits and enable you to focus on your core activities accurately. The services are available at affordable price. To know more, contact us at or Click Here

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