Do you pay your vendor invoices at discount? A comment from a suplier made me wonder why people would not want put an extra 2 to 5 percent on their bottom line, and then I wondered how many people take advantage of this easy money.
Hi Deb, can you please explain why you can't pay a discount?
When I first started, I put everything on a credit card to keep paying bills simple. No big deal, I would pay it off every month. "What does 2% to 5% really mean anyway”, and besides, I won't have to spend as much on postage and writing those stupid checks. My time is worth money. I didn't bother to try to negotiate further discounts from my vendors. It’s too much trouble.
This year I am changing my ways. I have negotiated better pricing with 95% of my vendors, and I almost have entire converted to open accounts to take advantage of that 2% to 5% savings. With an average savings of 12% from my vendors, and the savings from paying early is approximately a 15% annual savings on my cost of goods. We can't afford not too! This will also be my first full year with Quickbooks. It should be very interesting to see what tails it will tell.
Just gotta be a little contrarian here -- the cost of postage, envelope & check itself and to really get picky the printer ink (at about 5 cents for ink jet), can eat up quite a bit of that 1% 10 or 2% 10 on small invoices.
I can't pay at discount because of cash flow problems. I jumped into an existing business and really didn't know everything I should have known. Well, I'm here now and determined to make it work.
I have hopes that things will continue to improve and by this time next year I will be taking advantage of those discounts.
I do a variation of what David does. I mark on the outside of the envelope the day before the discount-pay deadline date. I file this in my desktop letter-holder. Each invoice I get from the vendor until that date goes into the same envelope. On the date marked, i pay all the invoices in the envelope. Some of these bills may be 9 or 19 days old (depending on the discount terms) and some may have arrived that day. But this way, i write the fewest checks, but get discounts on all invoices.
To answer the question--If one only has one small invoice a month from a supplier, yes, the costs of issuing and mailing a check would be the same. But, for me, many times I end up with 2 or 3 a month from the same suppliers. If one check can pay for more than one invoice, it cuts the processing costs accordingly.
I vote for 20 day discount terms! One now defunct company used to get us the invoice routinely in about 9 days!
Everyone wants a discount from us! why shouldn't we get a discount for paying on a timely basis? If you have an interest bearing account which gives better than the discount and even the penalty then it is worth it but the numbers have to be pretty big. 1%/10days on a $35.00 bill who cares. Fly miles, now thats another story. Just started that this summer. I'll see if it is worth it.