How to Incentivise Early Payments & Improve Cash Flow
Late and non-existent payments can cause major stress for businesses. Not getting paid on time has knock-on effects for cash flow and causes future problems for your finances. But what if there was a way you could alleviate this risk?
With early payment discounts you can incentivise your customers whilst maintaining the health of your business. Find out if this solution can improve your cash flow and what you need to consider before offering discounts to your clients.
The problem with late payments
As a business owner, you probably know the woes of late payments. The more invoices are overdue, the more your cash flow will suffer.
This not only wastes your time chasing up invoices, but adds extra administrative costs which can be avoided. The longer payments go without being paid, the higher the risk that they never will be. A scary thought, right? But what if there was a way to minimise the risk?
That’s where dynamic discounting comes in.
This is a method which accelerates repayments in return for agreed discounts on the services purchased. Time limit, payment and discount are all under your discretion and negotiated to suit the business and the client.
This method of payment gives people flexibility, whilst also motivating customers to pay faster and reap the rewards.
The benefits of discounts
So, how can offering discounts improve your cash flow?
The main benefit of early payments is that it will immediately add to your bottom line, improving business profit margins. Not to mention, it will also strengthen your credit report.
More long term, offering discounts for early repayments improves customer loyalty and builds lasting professional relationships. It can be a major incentive for clients to remain faithful and choose you over your competitors.
As well as improving cash flow, discounts can reduce administrative costs. With a stable and steady cash flow, you’re less likely to need bigger loans.
However, discounts aren’t always the main solution. When considering whether your business can offer discounts for early payments, there’s a few things you need to remember:
- How much do late payments affect your cash flow?
- What is the standard rate for discounts in your industry?
- Do your clients have a history of late payments?
Once you’ve determined if discounts are a viable option it’s important to define payments and communicate clearly with your customers. When finalising agreements be sure to get terms in writing as proof and a physical record of the discount options.
Need help keeping an eye on your accounts?
As a business owner you’ll no doubt have you hands busy, but UWM can reduce your workload. Whether it’s cash flow problems, bookkeeping or business planning, we can help you stay financially organised. If you need assistance with your company’s finances, please don’t hesitate to get in touch with our team today.