Raising Capital

Discounts

When you've decided to let your clients or customers pay you after you've delivered a product or service to them (instead of before), it may be in your interest to give them a bit of extra motivation to pay their bills more quickly. Faster payment by your customers improves cash flow for you.

One of the most common ways of motivating customers to pay more quickly is giving them a discount for prompt payment. This discount typically from 0.5 percent to 2 percent for payment in 10 to 20 days is negotiable and at your discretion. When you want to give it a try to see whether a prompt payment will improve your cash flow, start by offering the smallest possible percentage say, 0.5 percent for payment in 10 days. If this offer doesn't nudge your customers into making quicker payments, consider edging up your discount until they respond.

Try not to get carried away with prompt payment discounts. Is it going to be worth giving your clients 5 percent off their invoices when you can get your cash only a few days sooner? Probably not. Be sure to carefully analyze the impact of prompt-payment discounts on your