HBA Early Payment Discounts

Hi There, Victoria from HBA Encompass. And today I want to talk about early payment discounts. So there’s two sides to it. One is you’re the business owner that’s offering it. And the other side is you are the customer that’s being offered it to. And, look, I’m in two minds about early payments discounts. It all depends on your business and the cash available at the time. So if you’re a customer, and you are offered a 5% discount for paying something early, and you have money in the bank, then it makes sense to take an early discount, because the interest that you’re getting any bank account is bugger all, really. But getting that 5% discount on the materials or whatever it is that you’re purchasing really adds up to your profitability. However, if you’re running on an overdraft, or you’re going to have to put it on a credit card where there’s interest components, the interest that you’re going to pay is likely to be higher than that 5% discount. So you’re actually going backwards by doing it that way, because you’re bringing the payment forward and putting it on the overdraft or putting it on the credit card. So in that instance, I would suggest not paying early discounts. From the business owners point of view who is selling the product, then early payment discounts can be a way to improve your cash flow and to keep your debtors down. But you need to look at the effect that’s going to have on your margins and the whole cash flow scenario. And that’s not something you can do in your head or quickly pop into a spreadsheet. We do have software in the office here that we can do what-if scenarios and look at it and see the impact that it will have on your cash flow and your profitability. So my suggestion is if you are thinking of offering these kinds of discounts, give us a call or make an appointment, come in or we can do a zoom meeting, whatever is easiest for you. But we can actually look could the ramifications and give you an answer based on different levels of percentages as to where it would leave your cash flow. So call the office 0754 447094 or go on the website hbaencompass.com.au book an appointment and we can talk you through it. So that’s the ins and outs of payment discounts from both sides of the scenario.

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