Early payment discount is offered
by some companies to encourage
The early payment discount is
also referred to, as a prompt
payment discount or cash
Benefits of Discount in Receivable
The most effective benefit of discounting in receivable
is the receiving early payments. Instead of waiting
When you use discount policy, you can improve quick
pay pricing with their own supplier. Reduce the cost
of future sale and improve profitability.
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?
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.
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)
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%.
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
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.
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