By Nodus 17 August 2021
Although completing a sale or service is the lifeblood of any business, the story doesn’t end there. You need to ensure that your customers follow through with timely payments.
Good cash flow is important for a number of reasons; the need for agility, the importance of infrastructure improvements, and the threat of unexpected expenses are just a few. Even with great revenue and manageable expenses, insufficient cash flow can still lead to failure. That’s why you should consider payment terms discounts as a tactic to speed up your Accounts Receivables collections.
In most cases, a company and its customers have agreed to a set of payment expectations before the customer receives their goods or services. “Payment terms” are rules set by businesses that state when a customer is expected to pay an invoice. If the customer goes beyond that time frame, it is understood that they’ve violated the agreement. A few examples of common payment terms are:
- Net 30 · Invoice is due 30 days after the Invoice Date
- EOM · Invoice is due at the End of Month
- 21 MFI · Invoice is due on the 21st of the month following the Invoice Date
Companies using payment terms can implement payment terms discounts. These are discounts a business makes available to customers who pay their invoices within a certain timeframe. An example of a payment terms discount would be to give the customer a 2% discount for paying their invoice within the first 10 days, instead of waiting a full “Net 30” days.
Two main reasons businesses choose to implement payment terms discounts are to a) incentivize customers to pay on time, and to b) lower their average Days Sales Outstanding. At first glance, it might seem counterproductive to lose that revenue for the sake of being paid sooner. But this has become a common practice because it:
- Increases the likelihood of being paid on time
- Reduces the risks of nonpayment
- Reduces gaps in cash flow
Within PayFabric, you can easily add payment terms with discounts to invoices and encourage customers to pay their invoices sooner. Multiple flexible options are available for configuring the payment terms discount such as discounting a percentage of the invoice or just a flat rate. When customers pay invoices using PayFabric, available discounts will automatically be applied. Also, if you are using one of our integrated solutions, such as Microsoft Dynamics GP or Microsoft Dynamics 365 Business Central, the payment terms from the integrated invoice will automatically be available to customers paying with PayFabric.
If you are interested in implementing Payment Terms Discounts for your business, contact us today: 909-482-4701 or email@example.com.