Cash Discounts Can Speed Up Collection
Saturday, November 27th, 2010
Christmas is approaching and your small design business is a little hungrier than usual for cold-hard cash. You owe your contractors, your suppliers and you have presents to buy. You know there is earned profit out there in the world but your customers are under the pre-Christmas pressure, too. What can you do?
Calculate the Value of your Discount Options
It’s time to pull out your calculator, a sheet or two of A4 paper and a biro and quantify what discounts you can offer to incentivise and speed up payment. Step away from your computer… it’s not about using powerful software but about making tactical and strategic decisions.
The question is how much better or worse off will your business be in the big picture. Make a column for full payments owed… a column for a 2% discount offered… and a column for a 5% discount offered. The rows down the page should list your outstanding client accounts. Once you’ve done that you’re ready to make a decision.
Don’t be Impolite or Sarcastic
It’s difficult for small business to figure this out but don’t take the debt personally. Remember that a human being with their own financial pressures approaching Christmas will read any letter that you send saying – “PAY NOW OR ELSE” – whether it’s direct or veiled in sarcasm. Their reaction may be negative. And just because someone is a little late paying their account doesn’t mean they’re bastards.
Sometimes they’re caught in short-term finance issues that are partly out of their control – for example, their client hasn’t paid them yet… or an unexpected bill threw them askew for a few weeks. Just be understanding.
Pre-Christmas Amnesty Discount
If you can afford to lose 5% of that debt you might consider allowing it as an amnesty for overdue accounts paid in full before a certain date. So if you’re owed $2000 then you’re offering $100 discount if they pay in full within two weeks.
Don’t think about the $100 you might be forfeiting… if you can afford the short-term hit then it’s a sound business initiative because money in your account is far better than money in their account – you can use it to pay your own short-term financial obligations.
