Don't offer discounts.......

[thementor]

...for early payment.

When I ran a publishing company, we thought it would be a good idea to offer a discount of somewhere between 5% & 10% to customers who paid for their goods within a certain period, usually between 7 and 14 days.

Guess what, very few of them paid that quick and even the ones who paid on the final due date, sent the ORIGINAL discount invoice with their payment. Even worse were the ones who paid late and sent back the discount invoice with the payment ! ! DOH

We then had a choice of chasing the outstanding monies and risk upsetting potential future customers or taking a hit on the lost revenue. We decided on the latter course of action and stopped offering discounts.

 

[David Earle]

I have another one about not offering discounts.

I changed my business model so it was geared mainly towards members of the public instead of trade customers. I instantly benefited from not having to do everything at "trade prices". It's made a HUGE different to the amount of cash available.

Sometimes the simplest changes make the biggest difference to the one thing that matters: Your bottom line.

 

[NextPoint]

A way around this problem would be to offer the discount on the next payment - so if they pay the current invoice late, you don't give them the discount on the next bill. That way they can't complain when they receive the bill for the full amount, but there is still the incentive to both pay the current bill early and also to do additional business with you to get the discount.

 

[Ian J]

A way around this problem would be to offer the discount on the next payment - so if they pay the current invoice late, you don't give them the discount on the next bill. That way they can't complain when they receive the bill for the full amount, but there is still the incentive to both pay the current bill early and also to do additional business with you to get the discount.

Sounds like an administrative nightmare

 

[NextPoint]

No additional admin is required if you have the right systems in place. I developed a client management system that allows me to do this easily - I put in the details of the invoice and it takes out any previously recorded discounts due. Due discounts can also be edited and deleted when required - simples.

 

[MH1]

I used to use the same system suggested by NextPoint almost 20 years ago selling electrical products to the trade, it worked well. I had a slight twist in the discount only occured for accounts worth £1k a month or more, which helped to increase orders, and by applying a discount off their next months figure the client had to order even more products to ensure they got the next discount.

The offer was made to accounts spending £500 per month or more, it helped achieve an average 10% increase in orders from these accounts with no other measures, but it was a fair while ago.

 

[Banner Stands]

Hi 'thementor',

I'm reading your post and imagining that we would have the same problem if we adopted the same approach!

 

[Studio54]

We sometimes offer discounts for upfront payment, we don't start work until the money has been paid and this helps our cash flow, can be tight with big jobs as offer a 10% discount. The problem is getting thiese jobs finished as we have the full payment therefore the usual incentive of being paid is less iminent.
Has anyone else done this sort of thing? We find it is ok?

Although we are thinking about writing in late payment penalties to contracts where we include a clause that certain timeperiods over the invoice deadline we add interest. This is from companies putting off paying us for months and months and also personel leaving so we don't know who to contact to get the money.

 

[matt.chatterley]

A way around this problem would be to offer the discount on the next payment - so if they pay the current invoice late, you don't give them the discount on the next bill. That way they can't complain when they receive the bill for the full amount, but there is still the incentive to both pay the current bill early and also to do additional business with you to get the discount.

Yeah - we originally did something like the OP, a long ago, and people did tend to not read the conditions (e.g you must pay early) - and just assumed they would get the discount anyway.

If we were to do it again (we probably wouldn't) then I would definitely do it as a credit against the next invoice - no two ways about it!

 

[Banner Stands]

You can always look at changing the way your business works as a whole.

We went through a period of expansion and the increased turnover had to be financed from our own coffers. It is OK if customers pay like they should within 30 days but in reality, we know that most businesses don't.

With a growing age debtors list, we decided to change tact and deal with new customers on a pro forma basis with the exception of public sector organisations.

 

[emailexpert]

When I bill it is generally either in advance of the work - which is heavily discounted, or on invoice. If they opt to go for the invoice route I always wonder why and will bring the subject up with the client if I feel it is appropriate (eg its Nestle or some other massive corporate, so I know it will be corporate policy to pay on invoice and possibly on terms other than my own).

Another approach that I have taken is to load the price. Therefore, even with discount I am more than happy.

If a client continually pays late I would be questioning whther to continue to do business with them (actually thats putting it nicely. I cease doing business with them in most cases... a whole other subject 'how to manage out your clients')