SHOULD YOU BE ACCEPTING EARLY PAYMENTS IN ACCOUNTS RECEIVABLE?

What’s better than getting paid on time? Getting paid early. Sometimes this can seem nearly impossible when many of your customers can’t even seem to get their payment in on time. However, offering early payment options to your customers for a slight discount on their total payment due can help boost these early payments. Many companies choose not to do this because of the small hit they have to take on their total incoming payment – a 1 or 2 percent deduction. There are certain times when offering this early payment discount can be helpful to your accounts receivable department, much better than not getting paid at all.

Below are some scenarios where a company may want to consider offering an early payment discount.

IMPROVE CASH FLOW

In many businesses, the best times of year for orders and sales are cyclical. This can cause issues with cash flow, making certain times of the year very tight for a business. In order to improve cash flow during the “down times”, a company may want to consider offering early payments to the customers that do have open invoices. This can increase cash flow when, ordinarily, a company might be struggling.

WORKING CAPITAL NEEDS

Whatever the need may be, whether it is investing in a new marketing campaign, buying new equipment, funding an expansion, or some other need, offering early payment to customers could open a line of cash to meet these needs. This eliminates the need to finance your own working capital with another company.

GETTING PAID NOW IS BETTER THAN NOT GETTING PAID AT ALL

Unfortunately, there are some customers that may go through financial issues while you have open invoices for them. If their company ends up going under, you’re stuck with never getting paid for the services or products you provided them. Instead of ending up possibly never getting paid, offer an early payment option to those customers that seem to be going through financial hardships. Getting paid a fraction now is better than never getting paid at all.

Sometimes taking a fraction off the top of a customer’s invoice seems like you’ll be missing out. You provided a customer with a product or service and you should be paid for it, in full. However, sometimes for your own financial health it is important to offer an early payment discount and increase your cash flow.