invoicing made easy
Start your free trial
No credit card needed
No credit card needed
Why are vendors willing to offer discounts for early payments?
For businesses to evolve, different marketing strategies are applied. And most likely, almost all businesses nowadays encourage customers to have early payments by offering trade terms, i.e. qualifying the customer to avail a certain percentage of discount if he is able to pay within 10 days knowing that his balance is yet to due in 30 days from invoice’s date. Scenarios like that are already familiar to consumers.
Vendors offer discounts for early payments for some reasons.
Vendors offer discounts to early payers because they simply want their money back as soon as possible. It may sound simplistic but that’s how business works. Getting paid early is very vital.
Businesses are willing to offer discounts for early payments to secure the money of their customers and to avoid greater risks because the longer a receivable is outstanding, the greater a chance that it will never be collected. Otherwise, this might be spent on other things less important because the longer the vendors wait for their money back, the greater the chance of losing their money as unanticipated reasons might get in the scene.
The key to offering discounts is to be able to turn that quick cash into savings for your business. It serves to be the most important advantage because it improves the cash flow of your business since it shortens the average collection period of receivables which translates into working capital being received by your business in a shorter amount of time.
Accepting early payments lets the vendor incur lower borrowing costs in case interest rates are way higher than the discounts the business offer.
Early payment discounts are an incentive for a customer to do business with you than doing business with other vendors. This is especially true for small businesses that do not necessarily qualify for quantity discounts.
Many businesses offer customers a discount if they pay their invoices early. Discount terms are commonly shown in the invoices the vendor gives to his customers, depending on the template the business uses.
However, in order to come up with a decision of asking early payment trade terms, it is best to assess first if early payment trade terms have been prevailing in your business’s industry, if your competitors are also offering discounts, and lastly, if your customers expect discounts or not.