Allowing customers to pay early and accepting early payments is a big change for many organizations. While it changes the structure of the collections process, as accounts will have to be contacted earlier and payments will have to be posted earlier, it can also maximize cash flow. So before you dive into offering early payments, here’s what most companies want to know before signing on.
WHY SHOULD YOU OFFER EARLY PAYMENTS?
Overall, accepting early payments does a world of good for your cash flow and can improve working capital. While you may be waiting 90 days or more for payment from some customers, the early payment from others will help to create a cash flow balance. Even offering a small discount to customers for their early payments will still improve your accounts receivable.
WHY DO CUSTOMERS LIKE USING EARLY PAYMENTS?
A majority of customers like using early payment options because of the discounts that are available with them. They see this as a way to free up cash for their own business and generate a second source of their own “cash flow”. If they have the cash on hand, why not put it to good use on an investment for the business, allowing for more cash to be available later on in the year.
WHAT EARLY PAYMENT OPTIONS ARE AVAILABLE?
There are two major options available to facilitate early payment that most vendors use. The first is by offering an early payment discount on every invoice with the terms and discount rates clearly stated. This allows every customer to take advantage of the discount, and gives your company many opportunities to collect faster. The other option is to create an “early payment discount plan” when the customer first signs on. They will agree to the terms and get a discounted rate on the overall product or service. Every invoice after that is expected to be paid early. The only issue this can create is the customer possibly getting the discounted rate but not paying on the early terms.
To learn more about accepting early payments, check out our other resources.
