• WELCOME Grumblers
    Backup is now done at 3PM EDT. You may find the server down for up to two minutes at that time.

The Fallacy of the 5% prepayment discount

Rob Markoff

PFG, Picture Framing God
In this month's DECOR Magazine there is an article about collecting deposits that includes a featured dealer who did not seem to be busy as there were not many items to collect at her shop as they had all been picked up. She attributed it to the fact that she offers a 5% prepayment discount, so most of the orders are prepaid and the clients are eager to collect their art.

So the DECOR promoted 5% prepayment fallacy rears its head once again.

I first learned of such a scheme years ago in DECOR and I embraced the policy as well. It took a visit from Jay Goltz to make me realize what I was really doing and we discontinued the practice years ago.

IF you require a 50% deposit on every order as a standard practice, then you are not giving a 5% discount for paying the entire order, you are giving a 5% discount on the entire order for paying the additional 50%. There is a difference.

And, to add insult to injury, the article states that to offset the 5% discount, all prices were raised 5% so when the 5% discount is subtracted, the framer did not lose any money. WRONG!

Framing is a game of margins. If your selling price was $100 and you raised your prices 5%, then your selling price is now $105. 5% off of $105 is $99.75, so you have not received $100 and are in fact taking in less money than if the customer had given you 50% and then paid the balance when due.

Reminds me of a man in my class that "fools" interior designers by marking up his prices by 20% and offering a 20% discount to them. WRONG. If you wanted to net the same amount you would have received before offering the discount, the selling price needs to be marked up 25% to offer a 20% discount.

I love you Jared, but I really think you and DECOR did a disservice by perpetuating a false myth and one that could ultimately COST framers in the long run.

Bad math is Bad math, even down under.
Sponsor Wanted


PFG, Picture Framing God
Not just bad math, but bad business. I'd rather have 100%, and I usually get it up-front. Like, 90% of the time.

Jeff Rodier

SPFG, Supreme Picture Framing God
I've found that by simply stating that we require payment in full at the time the order is placed we nearly always get it. If a customer asks permission to pay only half I will usually grant it. Since they must ask me for permission to do so they rarely do but offer a reason for doing so. I get the occasional "I get paid on Tuesday so I was hoping to just pay half now".

M's requres payment in full and charges 3 times my price even with the 50% off discount. I honestly believe the only thing preventing us from being paid in full is our reluctance to state it as store policy.


MGF, Master Grumble Framer
5% off doesnt make much sense to me. I just take payment in full at the time of the order at 100% of the price. I dont see why giving an extra discount to get them to pay up front would be benefical? On the rare occasion that someone doesnt want to pay in full, I will allow a 50% deposit, but I dont bring that up unless the customer does.


PFG, Picture Framing God
I don't offer any discounts for paying early. I require 50% at the time of sale, too. That always covers materials so I'm never behind.

There are zero benefits to giving money away.


PFG, Picture Framing God
From a business standpoint, offering a discount for full payment smacks of desperation to me. Let me share an example. Jeff recently placed an order for a pair of shoes at an independent shoe dealer. The shop asked for payment in advance, which he paid, understanding that the dealer had to order the shoes specifically for him, and that he could return them if necessary.

If the shop had told us that we could get a discount for payment in advance, my first thought would be that payment in advance is not the norm, and that they have a cash flow problem. There is something a bit dicey about offering rewards for payments, rewards for cash, and so on.

There are certainly other risks to raising prices in a recession and price raises should be taken seriously, after due diligence with regard to cost of goods, overhead, and local competition.

Do magazines necessarily endorse everything from their contributing writers, or is one of their functions to enable differing viewpoints in articles they publish? I would certainly hope so.

Frame Lady

CGF II, Certified Grumble Framer Level 2
The only place I get a 5% discount is the DENTIST. I do not have dental insurance so they give me the discount for paying in cash at the time of service. I guess the insurance money comes to them in about two months, so they are thankful for payment.

In our shop under $100 you pay in full. Over $300 I sometimes ask if they want to split payments. And you all are right, we are our own worst enemies. Because 9 times out of 10 the customer pays in full without me even asking.


PFG, Picture Framing God
The only place I get a 5% discount is the DENTIST. I do not have dental insurance so they give me the discount for paying in cash at the time of service. I guess the insurance money comes to them in about two months, so they are thankful for payment.
Interesting you should say that. Mine offers the same for payment at the time of service. I'm sure medical collectibles are a nightmare.

Jared Davis CPF GCF

MGF, Master Grumble Framer
I love you too Rob :) .... and I genuinely appreciate your insightful critisim in a positive way...

I'm glad someone out there actually reads articles!... and I appreciate you have offered your time to improve on the points highlighted in my DECOR article.

the article states that to offset the 5% discount, all prices were raised 5% so when the 5% discount is subtracted, the framer did not lose any money. WRONG!
Pricing is always a touchy subject, and everyone has a different take.... but I totally hear you, and I agree with you on the "bad math".... and I should have known better than to let that +/-5% calculation slip... which is a 0.25% profit differential (... that is for 5%... the differential is more if the % is increased).... but it's all good.... I'm happy to be told I am wrong... especially if I am wrong :)

As you can understand, I just told the story as I was shown from Sue, the framer, which was true... but a little more thought could definitely have been applied to the article by myself, and I take responsibility for that error.

I guess you could say, as long as the discount math was calculated and applied accurately first... then the essence & spirit of the concept still holds up.... it was just a psychological aid employed by a framer named Sue, to encourage payment "up front".

At the end of the day, Sue (the framer in the story) still makes more money than most framers, she has a thriving high-end business, she has great cash flow... and she doesn't blatently advertise the 5% discount everywhere with shop signage, etc in a crass, cheap way..... it's done discerningly. (But yes, she was probably not aware that she was loosing 0.25% profit using this method inaccurately... )

I'd rather have 100%, and I usually get it up-front. Like, 90% of the time.
I agree - but unfortunately not every framer reads the Grumble!.... and not every framer knows how to run a business perfectly... especially when it comes to asking for payment.

I wrote this article to help offer a solution to an increasingly common problem with too many framers I come across on a daily basis, struggling from month to month to pay their bills.... usually due to the fact that they cannot extract payment "up front" at all... let alone a deposit... (which is not just about the $$... it's also about a securing a psychological "commitment" from the customer to pick it up when it is ready, rather than stretch the "pick-up" process out for months... )

Every week, I'm on the road visiting a huge cross-section of frameshops, both good and bad, from a variety of different markets. Three weeks ago I was in Guangzhou, China doing business with a framing business owner, with over 1000 stores across China, and yesterday I'm in Melbourne with a small framing business owner, working from home, looking to take the next step of moving into a shop.... next week I'm in New Zealand seeing more framers... and one thing I can tell you for sure is this... eveyyone does things differently, and there's no framer out there that is doing everything right. (including myself!)

I'm not an expert in anything, and I never will be. I'm just a young (if 36 is still young?), enthusiastic, passionate CMC tech who has sharp eyes and ears, and a brain like a sponge, and I try to share what I filter and learn, with others who can use it... and in this process, I make a few mistakes and I keep learning more.

As the saying goes - take what you will, leave the rest... :)


Jeff Rodier

SPFG, Supreme Picture Framing God
I challenge all Grumblers who do not ask for payment in full to try this today. When you have completed the pricing and reached the point where you give the customer the total including tax tell them how much it is and shut up. Look them in the eye while doing this but STOP TALKING. One of two things will happen, they whip out their preferred method of payment or they will ask "DO I PAY THAT NOW". If they ask if payment is required now say "Yes" and shut up. A very small percentage will ask if they can just pay a deposit.

I bet that you will find at the end of the week you have received between 90-95% of you total sales for the week.

Jay H

PFG, Picture Framing God
So Rob, would you be so vocal over this menial amount of money if he suggested a global markup of say 6%? Is .25 on $105 really the issue? I don't believe that a nickle here or a dime there is really of the top 50 problems that frameshops of today face. You are consistent as you teach a dangerous game of credit card roulette and invoice date bingo to save a few dollars a year. Mathematically it's accurate advice and similar to advice my own accountant has given me. In practice I couldn't disagree more.

Staying on topic, would you agree with the following statement?

I wrote this article to help offer a solution to an increasingly common problem with too many framers I come across on a daily basis, struggling from month to month to pay their bills.... usually due to the fact that they cannot extract payment "up front" at all... let alone a deposit...
I don't. I think this is an overly simplistic solution to a very complex problem. Any shop in this situation has problems well beyond collecting payment today rather than 9 days from now. It seems a little like the captain of the Titanic complaining about the ruined paint on the side of the ship as water floods the deck.

If you do agree with that statement and collecting money now would ease some serious burden on a shop, would a penalty of $25 for each $10,000 gross cause you to reject that life ring?

I don't have a dog in this fight as I don't have cashflow issues and I don't plan on taking payment up front. I do wish for further clarification on why a .25% error in the customers favor is so risky especially if there is an added life saving benefits like improved cash flow.


SPFG, Supreme Picture Framing God
I agree with Jay that $ 25.00 on $10K sales is not going to make or break any frame shop. I also fully understand the importance of cash flow and the fallacy of bad math. However...

I'm still a big proponent of not requiring full payment up front but only requiring a 50% deposit for the following reasons:

~ Larger ticket sales.

If a customer only has to cough up 50% of a job when an order is placed then I believe the opportunity to upsell is enhanced. I firmly believe that my average ticket sale would decline if I required full payment up front because fewer people would opt for Museum Glass, fabric mats, stacked frames, and other design enhancements if faced with having to pay in full upfront.

~ Orders not even placed.

I have many customers that probably would not even leave their work and would "have to think about it" if they needed to pay in full up front... often never to return or possibly shop around more.

~ Psychology of price perception.

Paying half down is relatively easy for most customers. Paying the balance of the other half is also easy once they actually see the product and they don't perceive custom framing to be the large expense that it truly is.

~ Comfort level for the customer.

If a customer has not used your services before I believe they are much more comfortable leaving a deposit than paying up front in full. This applies to both their anticipation of the quality of your work and the mere fact that you may not be around in the next week or month to finish their project. How many gift cards are bought at businesses that are not even there when the recipient wants to redeem their gift? This, I believe, will be a major problem this Christmas.

~ Pavlovian principle.

This may or may not apply to others, but I am more motivated to finish a project and insure its quality when I know that I will get a reward when an item is picked up.

~ Competitive advantage over the BB's.

The BB's require full payment up front and then have the finished product available in 2-6 weeks. Personally I wouldn't be at all comfortable placing an order like that.

I'm sure I could continue with other reasons I prefer to have a 50% deposit policy over a full payment policy but the above reasons are enough to justify in my mind why I prefer doing business the way I do. If a customer tenders full payment upon order placement I never refuse it because most of the tenets I stated above are then irrelevant.

Just my 2 cents...


SPFG, Supreme Picture Framing God
If something is $100 and you offer the 5% discount; you would have to raise your price to $105.26 to actually get that $100 back.
But most people won't get that.

Anyway, why would you offer 5% for pre payment? My policy is payment in full upon placement of order. It is custom made after all.
If a customer really has a problem with that; I will accept the 50%

However, right now, I have a few finished orders sitting here, one since early September, one from February and one from early November, where 50% was put down and it still hasn't been picked up. So I am slowly starting to think; no more exceptions! These were orders well over $200. So yes, I won't loose money because at least the materials are paid for, but guess what, there are other bills to pay too!!!!

Paul N

In Corner
I always ask and get full payment (except in rare cases which are highlighted in Randy's link). No discounts of any kind for early payment which I think is tacky to begin with.

But how about a radical (well, at least by framers' standards....LOL) approach??

Say, payment is reuqired in full at the time of order, otherwise there is a 5% penalty......:p

Sure, some will walk and I bet those are the ones who never want to pay in advance AND never pickup their orders!

As I said, it's radical, man.

PS: Gotta agree with Jeff. It works exactly as he said!:thumbsup:


PFG, Picture Framing God
Last March, we started payment in full at time of order...we even have a small sign right by the POS computer (about 5 x 12) that says Payment is required at time of order.

I can count on the fingers of one hand how many times it was a problem for somebody. I would say 98% of my customers don't even blink...most have seen the sign and are already pulling out their checkbook or credit card before I even ask for payment.

Rob Markoff

PFG, Picture Framing God
Staying on topic, would you agree with the following statement?

I do wish for further clarification on why a .25% error in the customers favor is so risky especially if there is an added life saving benefits like improved cash flow.
Yes Jay I agree with the statement 100%. I have taught for almost 20 years across the US and Canada and have met many framers. The one common thread I find is that there are great craftspeople who are poor business people and do not understand fundamentals of business. And I share Jared's experience almost globally that most picture framers are poor business people.

And, most do not understand the significance of collecting even 50% when it comes to the bigger picture. It is timely that Jay Goltz has an article in PFM Production this month on cash flow and I recommend it to all.

You miss the point if you remain focused on the .25% error. First, it reinforces my argument that there are many who do not realize the full consequences of their actions (case in point, Sue) or even one of my heroes, Jared who also did not immediately call her on it, or worse yet, DECOR who published the article where, unfortunately, many will adapt the idea as bone fide since it was in DECOR.

Would any of you take issue of a trade magazine showing someone using PVA glue as a hinging adhesive or suggesting that corrugated is an acceptable cost cutting mounting substrate? How is promoting a faulty mark-up any different? It is not an opinion but bad math and I do believe a trade publication has an obligation to get the facts straight.

Back on track - it is the same faulty logic that also says that if the cost of a matboard (or cost of materials) goes up by $5, and we don't have time to do an across the board price adjustment to our prices, then if we just add the $5 to the selling price of the job, we have not lost any $$ because we have recouped the increased out of pocket expense. WRONG As I said in my initial post, business is a game of margins. While the dollar amount may be the same, the gross margin has decreased - a dangerous sign.

What are the three major symptoms that a business may be in trouble?

1. Sales begin to increase (gross dollars can be blinding)
2. Salaries as a percentage of sales begin to increase
3. A period of declining gross margins

And Jay, it is not $25 on $10,000 gross, that is just from the math error- it is the entire 5% discount that needs to be considered. It is NOT 5% off the entire order for paying the order in full, it is offering a 5% discount on the entire order for paying the additional 50% that was not being collected. Why has no one commented on that aspect of the faulty logic?

Now granted, this is the first time I have heard someone suggest that prices need to be adjusted in anticipation of the discount, but I am wary of offering the discount in the first place and feel it is unnecessary if the business practiced better collection hygiene as other examples in Jared's otherwise fine article suggested.

Additionally, I have yet to see advertising advocates say (correctly) that prices MUST be raised in anticipation of running an ad or coupon or offer that provides any kind of discount in order to maintain gross margin. Can you tell me (if you have a 30% COG), and you run an ad promoting a 20% discount (without raising your prices), how much more volume you have to do to BREAK EVEN? Volume = INCREASED SALES, so it is possible to have increased gross dollar income with disastrous results.

On an operating statement, there are two sets of numbers, the gross dollars and the percentages. Most people (incorrectly) seem to be focused on the gross dollars as a measure of profitability. In my classes I show how MARGINS are significantly more important. Anyone who argues otherwise is just plain wrong and I am sure your accountant will also agree.

Jay, I don't understand your comment "you teach a dangerous game of credit card roulette and invoice date bingo to save a few dollars a year."

I do advocate the responsible use of credit cards to collect reward points/miles and I always disclaim that those who cannot do so responsibly not attempt what I (and others) have done successfully.

I do not understand the roulette or bingo aspect and I am passionate about paying my bills on time and taking prompt pay discounts from vendors who offer them (and do not use credit cards to pay those who do.)

I also believe that taking deposits is a key factor in generating cash flow that allows for taking prompt pay discounts. And, anyone who does not understand the power of these discounts (or feels that the dollar amount of the discount per invoice is too small to be significant does not realize the savings on an annualized APR basis.) And I also advocate having a line of credit that can be utilized to cover those jobs where a deposit may not be possible (US Government, large corporate jobs with purchase orders) because the interest charged on the LOC is significantly less that the discount obtained from prompt payment.

At least you agree that my advice parallels that of your accountant but I do not understand how you could feel that facts do not apply in the real world.

Jay H

PFG, Picture Framing God
How is promoting a faulty mark-up any different?
Since computers and digital pricing became "typical" in a frameshop we don't use UI pricing much. We buy things like glass by sq/ft. UI doesn't translate to sq/ft very well and pricing that way creates huge chasms of pricing errors. Still framers were content using UI pricing because from a practical standpoint it worked efficiently and the margins were protected under normal daily operations.

From a factual standpoint you are correct. From a practical standpoint you may be unconsciously discouraging somebody from receiving the message because of a minor mathematics error. Ignoring the questionable tactic of marking up to mark down, would this thread exist if he said to mark it up 6% then mark it down 5%?

Is the strategy good or bad? Maybe that wasn't your original focus and awareness of simple the math was. If I apologize. It just seems like the entire methodology is being reprimanded because of a technicality that can be easily overcome. Or I'm miss the intent of this thread?

Jay, I don't understand your comment "you teach a dangerous game of credit card roulette and invoice date bingo...I do advocate the responsible use of credit cards to collect reward points/miles ...I do not understand the roulette or bingo aspect...

At least you agree that my advice parallels that of your accountant but I do not understand how you could feel that facts do not apply in the real world.
I think you have a fine thread here. Perhaps privately or in another thread would be a better place to hash this out. In short I believe you both give bad advice. Most financial problems people have, personally and professionally, has nothing to do with a misunderstanding of mathematical equations. Most money break downs aren't because of bad math. If we could always flesh out in real life what we pound out on a calculator, we would rarely have problems. Because debt and bankruptcy and failing frameshops are on the rise maybe we should focus just a little less on calculators and a little more on the practical application of finance.

David N Waldmann

SGF, Supreme Grumble Framer
Additionally, I have yet to see advertising advocates say (correctly) that prices MUST be raised in anticipation of running an ad or coupon or offer that provides any kind of discount in order to maintain gross margin.
And in fact, the $5 Foot Long thread a while ago showed that a discount actually INCREASED, not only sales, but NET PROFIT (dollars and maybe even percent).


MGF, Master Grumble Framer
One alternative is to price based on full payment up front. If the customer requests partial payments you add an "Administrative Surcharge" of 5-10%. That is my approach to this and it works...

Jim Miller

SPFG, Supreme Picture Framing God
We all do what we need to do in order to earn profitable business, and I'm no accountant, but it has been well established that the effects of discounting are unfortunately misunderstood by a lot of small business operators.

Here's a retail sale example that may be realistic for many of us:

Retail price of the order = $200.00
tax (6.25% in my city) = $12.50
TOTAL DUE = $212.50
Less 5% discount, which amounts to $10.62,

My accountant says a reasonable net profit for a small business may be 10% of total revenue -- that's at the bottom line, after all expenses and taxes are paid.

At that, the net profit from this order at full retail price would be $20.00. However, the 5% discount reduced the revenue by $10.62, leaving $9.38 at the bottom line.

Is this not a 53.1% reduction of net profit?

Of course, if the business operator were smart enough to save $10.62 of cost for every $200 order, it would all balance out.

j Paul

PFG, Picture Framing God
99.999% of the time I at a minimum require a deposit. Mostly customers will pay in full unless you give them an option (Just had a new customer in today that found us on the net and didn't blink an eye at paying the full amount of close to $700 )

So collect a deposit or get paid in full with order or at time of pickup, we are independent in this decision as well as our business.

My first thought when I read the article (If I read it right) was that quoting the price with an additional 5% tacked on might loose you some first time price shoppers. As I understood the 5% discount for full payment was only mentioned when they had agreed to the order and were ready to pay.

PS. That's another can of worms Jim. If I were going to give the 5% discount it would be on the pre-tax amount only. Then you add the tax in.


PFG, Picture Framing God
Quickdraw, could you elaborate a little on how you handle the admin surcharge on orders not paid in full? Do you apply that only to certain kinds of customers (commercial rather than residential), and how do you address it at time of payment? How do customers respond?


PFG, Picture Framing God
One point that I take issue at is raising prices to cover this discount. In today's budget minded world, I feel that any increase in what you tell the customer is not a good idea. Imagine that you are at the counter and come up with a design that comes out to $200 but since you added on 5% it is now $210. Most customers these days have a tipping point that the 5% might have exceeded. Now before you can tell them about the pre-pay discount, they have already compared it in their head to the estimate from the framer down the street and decided that they will head back there.

We require 50% but generally get the amount in full just by using "how would you like to take care of this today". If they respond with "do I need to pay for this now?" I follow up with a "we require a 50% deposit on all orders". If they do not want to leave a deposit, we don't do the work.


PFG, Picture Framing God
This brings to mind loyalty or reward programs which give a customer a certain percentage back on a rewards card towards future purchases. We have not engaged in this type of promotion because our monthly subscriber's coupon is all that we can afford to discount, but I would be interested to hear more about the math from those who use this type of incentive. At least one PFM writers advocates this and other discount promotions and it would certainly be educational to hear if he raised prices to compensate, and how much he has to bring in to protect his magins on these somwhat large discounts.

When it comes to financial advice, we have to be very careful when applying what we read in both of our major trade magazines, and I would urge editors to make clear that such advice comes from the writer and not the magazine itself. Differing opinions from multiple sources should be the lifeblood of editorial policy in a successful publication.

Carry on...


PFG, Picture Framing God
One simple way to keep your cash flow moving is to get work done quickly. Our average turnaround is 1-2 weeks. When we offer a one week turnaround most customers choose to pay in full because a half deposit this weekend and the next seven days later isn't worth the trouble to get thier card out twice. They just want to get it paid.


PFG, Picture Framing God
I don't know if one of those loyalty programs would be that effective in our industry. People get coffee at their local coffee shop every day, but how often do people get things framed? Even my more frequent customers may only come in 2 or 3 times a year. Saying their 11th frame will be free may just be too remote to be compelling to a customer. I know it would be for me.

As for the customer that refuses to put anything down in advance, that is a HUGE warning sign. I would feel no qualms about losing that person to another hapless framer down the road.


SPFG, Supreme Picture Framing God
Very interesting thread.

I agree with Kirstie, that a quick turn around will certainly help people feel more comfortable about paying in full up front.

I don't think you can add a surcharge for paying 50% deposit. My general rule is 100% up front, but for larger orders I will do the 50% deposit. I wouldn't dare add a surcharge though! I think that's a quick way to loose customers, as, as a customer, I would perceive that as a big negative.

Oh, and Jim, a discount is always before tax, isn't it?

Rob Markoff

PFG, Picture Framing God

You illustrate my point exactly. And, even if you discount before tax, the effect is the same - that unless you increase your prices effectively in anticipation of the discount (and I do not mean add a percentage at the time of sale, but have added the percentage to all of your prices before any transactions have even taken place) - then the discount comes from your net profit - it comes straight off of the bottom line.

My initial problem with the example cited in Jared's article was the faulty logic of mark-up to mark-down and the bad math. Regardless of retail theory, it is bad practice and the logic is incorrect. You cannot mark something up by 5% (or 20%) and then expect that taking the same percentage off of the marked -up number will ever yield the number you started with. That example should never had made it into print.

Regarding the "do I discount or not" arguement - there is no right/wrong and many have shown that there is no need to give up 5% to get payment in full. And Jared's article also supports this. My beef was not with the arguement, but with the thought that it is necessary to offer the discount in the first place and the poor application of the math.

Dave brings up the "tipping point" of prices, that an increase of 5% may eliminate the sale altogether. Maybe, but I disagree. Dave, I do not believe that you have taken my class where I demonstrate exactly how much business one could lose due to increased prices while still operating more profitably. Many framers are fearful of losing any sale but may actually make more money in the long run by doing fewer, more profitable orders.

With that in mind, I bet that Sue in Australia could keep her prices where they are (marked up by 5%) and eliminate the pay in full discount, would not lose significant sales as a result, and would make more money. We did and it had absolutely no tangible effect on sales other than we made more money.

Rob Markoff

PFG, Picture Framing God

You have accused me of giving bad advice and attributed to me teaching "invoice bingo" - and I have no idea what that means nor can I ever recall my suggesting anything like it. Please elaborate - specifically, what bad advice have I given?

Unless you can substantiate what you are accusing me of, I will seek to have the moderators ban you as they did Mr. Montgomery.


PFG, Picture Framing God
Rob, I understand what you mean when you say that you can make more with less, but in this example, you would be making the same or less (forgiving bad math) by increasing your price.

Increasing prices due to cost & overhead increases or just because you need to pocket more is fine by me. But this increase to offset an IMO unnecessary discount will affect the bottom line in a negative way.

In days gone by the "high end shop" could get away with selling at what ever they chose. In today's economy, even the high end customer is shopping around.

Rob Markoff

PFG, Picture Framing God

We are on the same page and I agree that increasing prices to cover an unecessary discount is silly and may cost sales.

However- maybe things are different in Australia re: economic conditions, and maybe Sue has such a loyal following (read the "note from her customer") that she may be in such a position that she could keep her prices where they are and eliminate the prepay discount. I know we were once in such a place and were significantly more profitable as a result.

I am also willing to bet than there are MANY framers in the US who are currently underpriced and could raise their prices 5%, not lose a significant number of customers, and make more $$.

Jeff Rodier

SPFG, Supreme Picture Framing God
Why not just raise your prices and then tell customers that they must pay at the time the order is placed. Kills 2 birds with one stone.

David N Waldmann

SGF, Supreme Grumble Framer
Why not just raise your prices and then tell customers that they must pay at the time the order is placed. Kills 2 birds with one stone.
Ahhh. Always one in every bunch that wants their cake and eat it too...



MGF, Master Grumble Framer
I have practiced this primarily with commercial accounts and it is stated as company policy. All orders require 100% prepayment or 50% down with a 5% surcharge to cover handling multiple payments and administrative overhead on all commercial orders. In virtually every case they have paid up front. If it's company policy and uniformly enforced it's not a problem. Trying to do set terms on a case by case basis is not fair and way too much headache. This method always gives my best price out the door, with the option to pay for convenience if desired.

My insurance company does it - so there's definitely a precedence. More educated customers understand the time value of money and a couple of quick calculations show that prepayment is cheaper (your only talking 2 weeks) and understand that that is where I'm coming from. It also eliminates the image of offering discounts to get the order. I really tightened up on my policies since I now have a framed diploma and treasured gift for a friend that has been sitting in my "Ready" box for about 2 years... Time value of those dollars has expired...

What is truly the difference in doing it this way or marking up for everyone and discounting only for those who prepay??

Jim Miller

SPFG, Supreme Picture Framing God
You have a class about that, Rob? Mine is titled "Survival Strategies - A Checklist for Small Independent Frame Shops".

That realization has completely changed my business in the past six years. By a combination of cost-cutting, better buying, better sales techniques, better marketing strategy, and smarter advertising, I'm making slightly more net income on about 20% less revenue than we had in our peak year.

I'm wondering why I didn't do it a decade ago.


PFG, Picture Framing God
Thanks for the response, Quickdraw. One thing I've heard before is that many companies have a policy requiring them to take advantage of any early-pay discounts.

Jay H

PFG, Picture Framing God
Unless you can substantiate what you are accusing me of, I will seek to have the moderators ban you as they did Mr. Montgomery.
You do as you need.

The bad advice on invoicing was more ultra-creative purchasing strategies for a point or two discount. I'm pretty sure I've read it here but I know you spent a good deal of time in your class discussing it. Nonetheless it was something to do with borrowing money (if need be) to pay an invoice to receive a point or two prompt-pay discount. I would go into more detail about what I remember but I'm afraid at this point if I miss understood a portion of it or miss quote you, I risk walking the plank. Does any of that sound familiar? If so I really hope that disagreement is not a bannable offense because I do.

Since we're talking about it why is a prompt pay from suppliers such an appealing offer for us but not a worthy promotion for our business? Is this small discount not destroying their business? If a 10% discount is a 50% reduction in net profit, does a 5% quick-pay cut 25% off the suppliers bottom line? How much of an increase would the supplier have to add-on in order to recover from such a foolhardy offer? Most prompt pay discounts will not let you use a credit card. Hmmm I'm no mathologist but discouraging credit cards saves a point or two off the top doesn't it? So what about an offer for 5% off, raise prices 1%, save 2% by rejecting CC's, take a 3% quick pay times the.... ahh I'm already lost.

Rob Markoff

PFG, Picture Framing God

The "bad advice" you are referring to is a fact-based, well tested and respected business theory that is also referenced in Jay Goltz's book, the Street Smart Entrepreneur so I am not alone in understanding that taking Prompt Pay Discounts is the easiest, single most money producing activity one can take in running a business.

Do not get distracted whether or not the business offering the discount has adjusted their prices in order to offer it (and most likely they have) - the fact remains that the discount is there for the taking and if one fails to take it (for ANY reason) then you are absolutely leaving money on the table that could go straight to your bottom line.

I will not spend time showing you the numbers, I do an good job of doing it in my class, and any accounting professional can do it as well. The fact is that when you "convert" a prompt pay discount percentage (such as 2%10/net 30, 2%20/net30, 5%20/net30, or 5%30/net 31) the APR "value" of the money exceeds the cost of any money you could (emphasis on COULD) borrow.

To be successful, a picture framing business should have a cost of materials that is 30% or less. Better managed shops run in the low 20's. If, as we have emphatically determined is a sound business practice, one collects a 50% (or more) deposit on a job, one should have adequate cash flow to fully cover the cost of the invoice that is discountable.

And this is where you may have issue with what I teach-

I say ALWAYS first pay any invoice that has a prompt pay discount within terms so you can take the discount. One has a choice as to which bills are paid in which order and the benefits of the discount make paying discountable bills a priority. This is not BAD ADVICE but sound business practice.

I also advocate having a line of credit or some access to cash at a reasonable rate so that in the event you have a short-term cash shortfall you can pay your vendors on time and also take advantage of the discount. I have a small line of credit from Chase @ 1.99%. That is cheap money in today's market. I also have larger one from B of A that is prime + 2% so it is at 5.75%, still a reasonable rate.

In my case, we do work for large commercial projects and for the US Government who will not pay a deposit. When bidding these jobs, we also know that we may have to borrow money to cover the receivable and the cost of the money is factored into the bid, just as any other expense, (such as the necessity of renting a storage area to hold goods or materials if the scale of the job requires). And, we buy from vendors who offer discount terms. One in particular, Universal offers a 5% discount if you pay your invoice ONE DAY EARLY. And, they also happen to have mouldings that work well for commercial projects. Larson also offers a 5% discount for US invoices over $500 (sorry Canadian framers) that are paid within 20 days.

If you do the math, the "value" of the discount on an annualized basis far exceeds the cost of borrowing money to cover the payable, so we use our credit line to pay the vendor and take the prompt pay discount. That is sound business practice because the short term cost of the money borrowed is less then the return from the discount. There is no, "bingo, no roulette" this is NOT a gamble or game of chance. It is a practice backed by sound numbers and prudent business.

And in my class I also make the following example that you may have trouble with-

To demonstrate just how important and valuable taking a prompt pay discount is, by way of an extreme example,
I say one COULD (I do not say SHOULD) take an advance on a credit card to get short term money, even at the highest credit card rate imaginable, and still come out ahead because the value of the discount on an "annualized" basis far exceeds even the 20-30% interest charged on a credit card advance.

Remember, this is SHORT TERM money. It needs to be paid back as soon as the receivable pledged against it is received. And I am not saying that it is sound business practice to use credit cards as a line of credit. But a responsible business person COULD do so in a pinch and still come out ahead. No roulette, no bingo, just FACT BASED numbers.

I was a small shop at one time. I didn't understand business fundamentals when I started and actually ran out of money and lived in a room of my shop. Then I passed my apron to someone to build frames for me while I learned about and grew the business.

I didn't know what the funny numbers in the terms box of an invoice meant, nor how important they were. But I do now- and they apply to ALL business, no matter how small.

Every invoice that has a prompt-pay discount should be paid within the terms specified to obtain the discount.

If you collect a deposit on every order, you should have enough money to pay the invoice, and for those times when you do not, the cost of borrowing money short term will absolutely cost less money than the return netted from the value of the discount.

Where is the bad advice in that?

Pat Murphey

SPFG, Supreme Picture Framing God
...Unless you can substantiate what you are accusing me of, I will seek to have the moderators ban you as they did Mr. Montgomery.
That kind of snotty threat is unbecoming of a Grumble participant. :icon9:

This whole thread is based on your complaint about someone else's advice.

Rob Markoff

PFG, Picture Framing God

In my initial post I referenced a specific event (a magazine article) and clearly pointed out the inaccuracy of the information contained in the article, even demonstrating why the example was wrong.

I also did not attack the author and in subsequent posts complimented Jared on an otherwise well written piece. And I think Jared knows me well enough to understand that there was nothing personal in my post. Jared, if you were in any way personally offended, please accept my public apology.

I make my living not only from framing, but also from teaching and writing.

If I were to make an unsubstantiated statement about you that "you do bad framing," on a public forum, where potential clients could read it and they may decide not to do business with you because of what they read, I think you would do what is necessary to protect your reputation.

To say in a public forum that someone gave (gives) bad advice without substantiation, or attributes quotes that were never made is challengeable, and if an individual makes personal attacks against someone in thread after thread, it goes against what the rules of this forum are about. That's is what the moderators are for.

Pat Kotnour

SGF, Supreme Grumble Framer
Am I missing something here? I know that the BB's mark up to mark down all the time and it obviously works. Funny math or not, if giving an incentive to pay up front is going to hurt so much, then it seems to me that they aren't charging enough to begin with. When I figure a frame job the customer doesn't know how I came to that figure. If they are price shoppers and object to the price I then show them how we can do it for the price they are looking for. I prefer not to take the full amount up front because I don't want to pay for work that isn't complete myself, so I don't expect my customers to either.

We give early pay incentives to our distributors....and almost all of them take it....at least the smart ones do because they know it adds up and improves their bottom line. We give the incentives to keep a steady cash flow, which we all know is what pays the bills. Jared's story about Sue's solution to cash flow may be a bit faulty in the math, but it obviously works for her and the idea is still sound. Also, if you read his article you should realize that it has to do with cash flow and how to maintain a steady one. It is disappointing to see so much criticism waged about the math, when it is obvious that the article was clearly written to try to help framers better understand the importance of maintaining a good cash flow. You missed the point entirely if all you got out of it was that Sues math is off.

Quite frankly, if giving a 5% discount to pay up front is going to put a shop out of business, then they are doing something very wrong to begin with and should probably not be in business. There is a very good reason why companies offer early pay incentives and better pricing when ordering in balk. A higher profit margin on a sale does not pay the bills....cash flow does. Steady work and higher volume means greater cash flow. That's not funny math....that's a fact.

Jay H

PFG, Picture Framing God
The "bad advice" you are referring to is a fact-based, well tested and respected business theory...
I think "respected business theories" are part of the problem. I think many theories are distractions from concentrating on day to day operations that could yield much better results than playing business or counting 1/2 percentages. More on this later.

...taking Prompt Pay Discounts is the easiest, single most money producing activity one can take in running a business.
Here is what I suggest and what I do. As quickly as possible get to where your invoices are auto drafted the day you receive the goods or cut a check and hand it to the truck driver. Put yourself on a cash bases and never look back.

I also advocate having a line of credit or some access to cash at a reasonable rate so that in the event you have a short-term cash shortfall you can pay your vendors on time and also take advantage of the discount.
I think "teaching" that it's ok to use credit in order to pay invoices in a "cash shortfall" situation is among the worst ideas I've ever heard. It's actually part of a convoluted formula my accountant suggested. Any shop in survival mode may have to rely on this type of thing but they should know that they have a gaping wound and are bleeding to death rapidly!

What you are describing is called an "emergency fund". It's cash, it sits in a checking account, it's available 365 days a year, it is 0% interest, and has zero risk. The last I looked my business is down 50% over last year. My invoices are all paid the day I receive the goods. My income is down slightly but “debt repayment” is up considerably. This all can't continue forever but I'm still doing well after a year that would end any business that put their faith in credit and math to bail them out of a cash flow crunch.

What's worse is that easily understandable and practical advice, like Jared's, is replaced with complicated and risky mathematical strategies involving credit and jockeying payables by their due dates and discounts....

Here are the types of articles/classes we need. "Pay your bills today - all of them". "Build an emergency fund". "Credit is the death nail of business". "Pay sales tax or die". "Net is not Gross”. I would title Jared's article, "Need cash, collect your recievables sooner".

These sound really basic and simplistic. I can assure you that these most basic and time tested and zero risk applications are mostly overlooked by business types. I know because it took me a long time to learn them mostly through personal experience. At the time when I needed this most basic advice I was taking classes about borrowing money and pay this vendor at 10 days then take the 30 day grace on a credit card and another 2% rebate.....

Even though it may be accurate advice on paper it doesn't work often enough in the real world. For example if you charge a $300 invoice on a credit card for a 2% discount, you get another 2% cash reward, then you pay your credit card 1 hour late and you're hit with a $30 late fee what does that do for your "APR value"? It is not the concept of these complex ideas is the fulfillment of them. Teaching them as standard operating procedure does seem, at least to me, mostly unhelpful.

I suspect you enjoy this part of business. To you it's practicle and interesting. I feel that I fully understand your POV. I simply ask that you try understand mine. Even better strongly filter what you teach through, my filter of "real life". Who knows the sum of that endaver may be some really powerful advice. I hope I have substantiated why I think it's risky advice. If not I don't know how I can make it any more clear. Please please please seek to have me banned if you cannot recieve this suggestion in the spirit that it is offered. You're welcome to do that without the threats. Just do it. (hey that's a good slogan)

Pat Murphey

SPFG, Supreme Picture Framing God

In my initial post I referenced a specific event (a magazine article) and clearly pointed out the inaccuracy of the information contained in the article, even demonstrating why the example was wrong.

I also did not attack the author and in subsequent posts complimented Jared on an otherwise well written piece. And I think Jared knows me well enough to understand that there was nothing personal in my post. Jared, if you were in any way personally offended, please accept my public apology...
Paragraph one, my point exactly. Paragraph two, what has "personal" got to do with it? Whatever your credentials, you must expect disagreement when you raise this type of issue on a "public" forum. The escalation with threats was unnecessary in my "opinion", that's all.

Rob Markoff

PFG, Picture Framing God
Am I missing something here?
Sadly, Pat K I think you are.

First I think it is important to differentiate what you do for your wholesale manufacturing/distribution side of you business and the retail picture frame side.
For this conversation, let's keep this apples to apples and only discuss what retail framers are/should be doing.

We have all agreed that collecting at least a 50% deposit is a good idea and that it improves cash flow. And we have agreed that collecting 100% is even better.

But, to dismiss the fact that there was faulty math because something is a "good idea" or to proclaim it as a "sound business practice" without understanding the
true effects on the bottom line is where you and I disagree. My concern is that someone "read it in DECOR" or even on the Grumble so it has to be true.

Even with increasing prices in anticipation of offering the discount does not reflect a true understanding of the cost (or mechanics) to a business for doing so.

Let's look at what offering a prompt pay discount really means: In effect, you are financing the receipt of a receivable by reducing the gross dollars owed.

It is interesting that I have brought his fact up in several posts, yet no one has acknowledged it- if you collect at 50% deposit (or try to) on every order, and you are offering a 5% discount for paying in full, you are offering a discount on 100% of the order for receiving the additional 50% at the time of order. That is NOT the same thing as offering a 5% discount on the the entire order.

And, the shorter the completion turn around (the time it takes to complete the order) the GREATER the net negative effect is of the discount.

If I understand your logic, Pat K, you are saying that it is reasonable to offer a discount as a way to generate increased cash flow? And that 5% should not have a tangible effect on a business?

What a prompt pay discount is from the "seller's side" is in effect another way of "borrowing" money. You are financing the advance of cash by "paying" someone for that cash.

Your customer "owes" you the remaining 50% of the order. They normally would have paid it to you at the time of pick-up (order completion) and in a perfect world, they would come in as soon as the order was ready and pick up the work and pay the balance. And, many of you say that you have a one to two week turn around. Let's use 10 days.

So you are offering a 5% discount on the entire order for them to pay the remaining 50% owed to you 10 days early. Statement of fact. They would have at best paid the balance ten days after they left the work with you, but are paying at the time of order, ten days early. And many have suggested this as a way to increase cash flow. You want to increase cash flow because you need the money.

Have you considered what the APR value is of the money you are lending? It is unreasonable to make a blanket statement that offering a prompt pay discount is sound business practice for most framers.

In fact, it may be less expensive to borrow the money from a LOC from an interest standpoint than to finance your receivables through discounts to your customers. Again, a statement of fact. Do the math. (and I know many framers don't like to)

Now, applying the small business model to this principal - many have also said that offering the discount is NOT necessary and it is all in how you ask for payment.

That it IS possible to get 100% of the money up front is you make it your policy to do so. (No debate from me here-you either do this or you don't).

My debate is that offering a 5% discount for prepayment is not sound practice and reduces profit potential as illustrated by Jim Miller in a prior post)-that there may be less expensive ways to borrow money, and most framers can raise their prices by 5% today and have no negative effect on their profitability.

Rob Markoff

PFG, Picture Framing God

Thank you for your reply.

I think we can agree to disagree. You come from a school where cash is king. I come from a school that says that cash can be leveraged to return a sum greater than its parts and I am willing to exert the effort to realize those returns. Just because you do not agree or want to do so, does not make those ideas "bad."

In two posts you have stated that my ideas parallel those of your accountant, which is something I certainly can take no umbrage. Seriously, if you disagree with me and especially your accoutant, why is he/she still your accountant? You may not agree with our ideas, but that does not make them "bad".

I am still concerned with your continued pejorative description of actions that I suggest (most recently calling the triage of bill paying "jockying" when in reality, one does have a choice as to which bill get paid first.) Ironically, everything you do not like seems to have a gambling term associated with it :).

You also keep raising the "practical" aspect, including paying for everything upon receipt, which for my business is completely impractical and would certainly require the writing of significantly more checks, knowing how much the invoice is at time of order, and having someone there who can pay the bill.

I was raised on the school of OPM (other people's money) and believe on hanging onto my cash as long as I can. Especially when it has been proven to generate more cash than if I had otherwise spent it. Your philosoply of paying off everything at the time of receipt is certainly one way to do things, though I do not agree that it has the potential of ultimately generating a greater profit than prudent use of lines of credit and cash retention.

There are also two schools of thought re: debt. I subscribe to the school that not all debt is bad. Even Jay Goltz in this month's PFM Production says that it may be a better idea to lease or finance a piece of revenue producing equipment than to pay for it outright. Think CMC - certainly it can be a money producing piece of equipment - and there are definately advantages to leasing or financing so that the cash that otherwise would have been used for the purchase of the machine could be used elsewhere.

Same for a car used for business purposes. And, we have a choice as to the length of the loan. My accountant agrees with me that I want a loan for as long a duration with as little down as possible. Yes, I may be paying for 5 years (as opposed to 3 or 4) but I will also have the deductibility of the interest paid and the depreciation of the item purchased. More importantly, I will have the longer term use of the cash for other things. That 4.9% APR that I am paying on my car is much less than the cost to me for paying off bills that are due Net 30 (with no discount) at the time of receipt. (Which is argueably a BAD business practice from your accountant's and my POV)

If a vendor is offering 30 day terms (with no discount) I do not agree that they should be paid at time of receipt. If your company gets to a certain size, the reserved cash can and will make additional money for you if leveraged properly.

I also use the word, "responsible" with respect to credit cards. Your example of losing the benefits of a prompt pay and cash back scenerio suggests that one should not do the idea because you MAY make a late payment.

First, there are ways to program payments to be made automatically so this won't happen - but if you are so worried about making a late payment, and you were going to write a check at the time of purchase anyway, just write and mail the check immediately to the credit card company (or pay on-line and avoid the check/mail delay altogether.) And, you get the 2% reward back from the credit card for your effort, an extra bonus to your bottom line.

For me, I love to travel, so I use a card that rewards me in free travel, which I have calculated to be a significantly greater return than 2%. Nonetheless, I agree that if one does not have the discipline to make timely payments, stay away from credit cards.

Paul Cascio

SGF, Supreme Grumble Framer
Wow, this thread can induce headaches. :)

Just a few quick comments if I may:

1. If you need to give a 5% discount to collect money on a custom order at the time of the sale, it's your sales skills, not your math skills, that really need work. Try this:


2. If I understood Rob's earlier post correctly (let me know if I didn't), he suggested marking up the price to then allow a 5% pre-pay discount. I completely disagree.

Higher prices add sales resistance. Also, if you could have sold that job for 105%, then you should have done it to begin with. The idea that we can pass expenses on to our customers without penalty is simply nonsense. Your expenses are always paid from your pocket; never from your customer's. That's your profit that is paying those bills.

3. Pat, I agree with Rob. When buying as a wholesale account, Net-30 is the norm. When buying retail, if you want terms, you uses your credit card or negiotiate it. They are two seperate scenarios with long established payment protocols.

4. A down payment of not less than 50% is simply foolish in custom framing. And if it's your norm, it's usually an indication of weak selling technique. We are making a personalized, tailored product that usually has little value to anyone except the person who ordered it. If you don't collect an adequate deposit up front, your backroom will eventually become an orphange of unwanted framed pictures and your cash flow will take a beating.

5. Paying every invoice when you place an order, or at least as soon as you get the invoice, is as Jay suggested, excellent advice as long as you can do it. I've always done this when I was able, because it lets me know how my business is doing simply by glancing at my checkbook balance. I would add that knowing your monthly Breakeven Point is almost as valuable, and can also reduce the anxiety that comes with turning the page on the calendar. Not completely of course, but it helps because you know where the first-down marker is, which is your initial goal each month.

In framing, you reach breakeven, you should be able to net at least 70 cents on every additional dollar you take in, until you get to the next level where a hire is required. Then, it's one step back to go two steps, or more, forward.
Sponsor Wanted