Updated: May 2, 2022
(Note - The original article from Retail Biz can be found here )
Businesses should repackage sales discounts as early payment discounts to boost revenue, cash flow and profitability, according to B2B early payments facilitator, Parakeet Payments.
Businesses often give away sales discounts to win new customers and boost revenue but overlook the hidden cost of chasing late invoice payments, which according to Charles Wong - CEO and Co-founder of B2B early payments facilitator Parakeet Payments, could add up to 5% of the invoice value to erode business profits.
With a recent Xero survey finding 63% of Australian small businesses and sole traders deal with invoices being paid late, the difficult task of balancing revenue, profits and cash flow, termed the ‘Golden Triangle’ by Wong, has never been more important than right now.
“Getting the Golden Triangle (revenue, profits & cash flow) right could be the difference between prosperity or despair for businesses”, says Wong.
Instead of doing what is ‘standard’ practice when it comes to managing sales discouns, Wong suggests one simple change.
Businesses should continue to offer sales discounts, but instead of immediately deducting the sales discount from the invoice, replace that with an early or on-time payment discount so customers only receive the discount when they pay the invoice.
“Whilst sales discounts are an effective way to win new customers, it’s not a guaranteed way to boost cashflow nor profitability. In fact, in most cases, the sale becomes unprofitable and is a large drain on your cash and resources when you factor in the hidden cost of chasing late invoices.”
“Revenue looks great on paper but getting cash in the bank quickly, without the massive time and cost burden of chasing is as important as revenue.”, Wong Says.
“By only passing on sales discounts at the time of payment in the form of an early payment discount, it incentivizes customers to pay early and brings accountability to both parties.”
“Your invoice gets paid early and your customer only receives the discount when they pay. The earlier they pay, the better the discount. Everyone wins.”
An added benefit is the potential for businesses to win more customers, Wong says.
“When you understand your sales margin, cost of chasing late invoices and have the technology to administer it, you can confidently price your early payment discounts offers, knowing that it will be profitable, manageable and scalable.”
“It then becomes a virtuous cycle of profitability. Your invoices are always paid early, your profit margins are always protected and you have cash sitting in your bank account, ready to reinvest back into your business. The Golden Triangle is in balance and ready for growth.”
Parakeet’s recent integration with Xero now gives over 1.2 million Australian businesses an easy way to add early payment discounts to create dynamically-priced Xero invoices so customers only receive the agreed discounts if they pay early or on-time.
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