Obtaining payment for the services or goods your small to medium sized firm provides can be a struggle. Slow payment cycles can hurt your cash flow and hamper overall business growth. Sometimes clients pay late because they’re in a financial bind themselves but other times, clients pay late because they think they can get away with it.
For instance, if you are a supplier to a large corporate entity, you may not want to upset your powerhouse client by demanding on-time payment or charging late fees or interest. So how do you get these entities to pay up more quickly without the power struggle? In addition to using accounts receivables financing, you can offer what’s known as the 2/10, Net 30 Discount. What is this discount and is it a worthwhile offer for your business?
Get Paid Sooner by Offering a Discount and Working with a Factoring Company
A 2/10, Net 30 Discount offers your clients a small discount, 2% of their total invoice, for remitting payment in full within 10-days. In short, you offer your clients a markdown for paying early. Why? If your clients are taking advantage of their high-value position, you need to offer them an incentive to remit payment in a timely fashion.
If you partner with invoice factoring companies, the 2/10, Net 30 Discount can be a big boon to your business. That’s because factoring companies determine your financing rates and fees based in part by how long it takes clients to remit payment. So getting clients to pay early will reduce your accounts receivables financing costs and help improve your overall business cash flow.
Sometimes, firms will choose to only offer this discount to preferred, long-term clients. It can be a way to reward your clients for their loyalty. In this way, many businesses that use factoring receivables feel the small discount is worth it because it supports their overall cash flow and helps eliminate the guessing game of when will the client pay. If your business has sizable profit margins, offering this discount can be beneficial.
Invoice Factoring Companies Know This Common Discount
Some clients will jump at the chance to shave a percentage or two from their total bill by paying early while others won’t bother at all. Others still might take advantage of the discount one month but not the next. In offering such discounts make sure you communicate how the discount plan works to the client. You want to avoid a situation in which the client gives themselves the discount but then goes ahead and submits the invoice right at the 30-day mark. Uh-oh!
By working with an accounts receivables financing company, they can handle your back office functions, such as collecting on invoices and processing accounts receivables. In this way, they can also work with you to help execute the specifics of the 2/10, Net 30 Discount.