Not looking at early payment discounts is leaving money on the table.
Late fees are a hassle. They seem small and insignificant until you realize that you’re paying more in late fees than you should. Most small business owners are unaware of just how much money is left on the table. Vendors will often offer incentives for early payments, and most of the time, will offer early payment discounts. Most of these discounts come in the form of 1/10 net 30, or 2/10 net 30.
First lets take a look at the 1/10 net 30 discount. This means that if you pay the vendor within 10 days, instead of the normal 30 days, you can deduct 1% of the amount owed. Now, a 1% discount may not seem like a big deal, but imagine if the invoice was $10,000. That’s $100 saved, just by paying early.
The same goes for the 2/10 net 30 discount. Here, you can save 2% by paying in the first 10 days. Now, you’ve saved $200. These may not be huge returns, but multiply that by the number of invoices processed, and you can really start to see the amounts add up. These savings can be really significant when operating on a razor-thin margin.
When taking advantage of early payment discounts, make sure you are following the best procedures. Ten days isn’t a lot of time, and you should make sure that you, your vendors, and your company execs are on the same page regarding when the discounts start and end. Sometimes checks have to be signed, executives have to approve, and before you know it, it’s the 11th day.
Let’s be honest. Sometimes it’s hard to pay in the first 10 days. If you’re having trouble getting your invoices processed, try focusing on your larger ones first, since that’s where you’ll get the biggest bang for your buck.
“Payments — especially large ones — that involve an early payment discount should be flagged to ensure that they receive priority handling so that discounts are not lost.”
Every vendor is different and most offer different early payment discounts. Be sure to consult with your vendor to make sure you are aware, and taking advantage of everything they have to offer.
