Offering a cash discount can benefit both businesses and customers in a variety of ways. A cash discount, also known as a sales or early payment discount, are provided to customers as a method to motivate invoices being paid in a prompt manner. Cash discounts can motivate and reward customers, increase cash flows, and lower inventory costs.
Motivate & Reward Customers
Many businesses spend a substantial amount of time tracking down payments from their customers month after month. A cash discount incentives customers to pay sooner in order to receive a discount on their purchases. This is a way to reward and build loyalty with your customers. In turn, your customers who tend to take their time paying their bills will be more willing to make payments faster.
Increase Cash Flows
When your customers decide to take advantage of the cash discount program, you will have faster access to a larger cash flow. This will allow your business to pay its bills easier. Offering a cash discount will benefit your business by increasing the amount of cash payments coming in during the first half of the current month rather than at the end of the month or longer.
Lower Inventory Costs
Your business suppliers may also offer cash discounts similar to the one you offer to your customers. This is a discount your business should take advantage of. In a high-volume, low margin business, even a low percentage discount on all of your wholesale inventory can add a substantial amount of money to your end-of-the-year bottom line.