I’m a loyal customer, can you give me a discount? This is often questioned in the final sales stage to ‘seal’ the deal.
There is no doubt a sales discount can be an effective means of driving sales, moving excess stock and attracting new customers. On face value, a win for the company. But is it really a win?
The sales team has done their job. It’s now handed to the accounts receivables to enforce the credit terms and follow up payment. If the invoice is paid on time, then yes, it’s a win.
What if the invoices are not paid on the due date? The account receivables team chases payment and the finance team source funding to bridge this late payment gap. Since we know the majority of invoices are paid late (the pressure to pay late - https://bit.ly/3fSG54D ), it’s highly likely that the invoice will be paid late.
The impacts are increased operational expenses and reduced profits. Whilst gross profit remains unchanged, net profit drops. The sales discount is costing more than budgeted.
Is the answer to stop offering sales discounts? Stop offering credit terms? Certainly an option but not commercial nor realistic. We believe there is an easier way and it’s now possible with technology.
We propose customers remain eligible for ‘sales’ discounts. Instead of giving the discount at time of invoicing, the same discount (or more) is given when they pay.
It’s a simple shift that will transform your cash flow and profits where customers now earn the ‘sales’ discount by paying early or on-time. A win for both parties.This shift from sales to payment discounting, traditionally manual and hard to police, is now easy to implement, personalise and automate. Flexibility around discounting methodology ( reducing, incremental or static) and personalised discounting (tier 1 vs tier 4 customers) are now scalable and easy to implement.
Don’t discount what you sell, discount what they pay. Your team and your customers will thank you for it. So will your Net Profit.