AmiSight 8/11: Quick Pay Discounts Are Not Free
Businesses in the B2B space often offer quick pay discounts to get money in the door and keep cash moving. But, while cash is king, there might be better ways to get the job done.
Consider offering a 3% net ten discount. So instead of earning $100, you will receive $97 instead of waiting 60 days which are the standard terms of your customer.
What if you didn't take the cash discount and waited 60 days to get paid? And during that 60 days, you borrowed from your line of credit at 8% interest because you needed the cash? In this scenario, your interest expense for the 60 days would be $1.33, and you would save $1.67.
Take some time to look at your cash discount strategy!!! There is probably a better way to do it!!!