ECN Forum Forums General Topics of the Trade Business Related Discussion 2% discount

What do you think about 2% discount for payment in 15 days from invoice date. Is anyone doing this and is it effective.

I always do it. It's 2%. The only reason not to is if you have cash flow problems like receivables over 30 days.

Dave

How could you handle that add it to your overhead or loose alittle profit in the end? Just though I woould ask you guys.

Most guys won't worry about the 2%, but if you adjust your pricing at the estimate stage by figuring out how much you want to charge the client, then divide that amount by .98 (100%-2%) you will have an adjusted retail price that allows you to offer the discount without cutting into your needed profits.

If you wanted to make this more substantial, you could do this with a 5% or 10% discount and still maintain the level of pricing you need for overhead and profit.

if you do $10,000 month with the supply house, you'll save $200 by paying net 10. If you put that money in a high yield checking account (like ING Direct) you'll earn 4% on that money. So, you'd lose approx $200 by paying the supplier NET 10.

just a thought.

this is under the assumption that you are billing and collecting in order to pay this bill. Not that you continually have $10,000 in the bank to pay and wait for your money. But even then, leave the $10,000 in the bank, and pay at the end of the month. Then if someone is a late pay, you are not stretched.

[This message has been edited by mahlere (edited 10-03-2006).]

the reason I mentioned this is because I am doing contracts for a large corporation and in the contract agreement payments from them are net 60,so I offered 2% for payment in 15 days and they accepted.I will now add this in to my estimates in the future.
I think if i wasnt so new at the business game i would not be doing this, but i am working alone and these contracts are taking most of my time and for now are my biggest form of cash flow.

trevman,

In my opinion, money in your bank sooner is a much better scenario...

Nothing wrong with what you're doing IMHO.

I think it is a great idea to reduce the wait and finance charges on your end.

I talked to my acct and he said that 2% can be a tax right off. so maybe ill get some of it back.

Sorry I misunderstood your post. Suppliers give a 2% (pd. by the 10th) dicount when the invoice is due in 30 days. It's a great move on your part to get the payment early. A 60 day net can give you serious cash flow problems. You solved the problem.

Congratulations, it sounds like you have a great business going.

Dave

trev, i misunderstood as well. take that money that is now Net 15 and put that into a high yield checking account. You'll get that 2% back in a month. You have the cash if needed and get the extra % from the bank. Essentially, you have just made them a net 30-40 at full price.

good luck