If you are looking to increase revenue and decrease expenses without making any major changes to your supply chain, then you should be capitalizing on payment term discounts. An early payment discount is a reduction in the amount on a supplier's invoice if the customer pays the supplier promptly. Whether you are the vendor or the customer in the transaction, there are ways you can take advantage of early payment discounts.
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According to Fit Small Business, the benefits of early payment discounts for customers are:
- Save money: The discounts add up over time to save you a significant amount of money, particularly if several of your suppliers offer discounts.
- Build business credit: By paying your bills early, you can increase your business credit score. Vendors can leave notes on your business credit report, visible to other lenders and vendors, which tells whether you pay your bills early, on time, or late.
- Build relationships with vendors: Vendors appreciate it when you pay what you owe them in a timely manner, and satisfied vendors will be loyal vendors.
Fit Small Business also notes the numerous benefits of early payment discounts for vendors are:
- Get paid sooner: Getting paid by your customers sooner means that you will have access to cash that you can use to meet payroll, take care of other day-to-day business expenses and keep your vendors / inventory paid.
- Reduce the risk of nonpayment or late payment: By incenting your customers to pay sooner, it becomes less likely that you will have to chase after customers who have late payments. Even the most delinquent customer will think twice about missing out on an early payment discount.
- Increase working capital and reduce gaps in cash flow: By shortening the lag time between invoicing customers and receiving payment, your working capital will increase, and you will be able to maintain positive cash flow.
The good news is, keeping up with all your vendors early payment discounts doesn’t have to be time consuming or complex. Using AP automation with advanced analytics and visibility, you can make sure you are tracking the early payment discount deadlines for all your vendors. In a recent report, Deloitte recommends AP automation so that it becomes easier to take advantage of discounts and rebates. Taking advantage of payment discount dates is key to being a strategic AP team for your organization. Make sure that you have access to reports, dashboards or analytics that allow you to set up your payments in this order. Turn your AP team from transactional to strategic, allowing you to add dollars to your organization’s bottom-line.