Our vendors are really getting stingy with the terms they're offering us for paying them early. Typically we get a 2% discount if we pay X days prior to the date payment is due. We have recently had several vendors either decrease or completely eliminate these discounts. We operate on such thin margins that every cent counts. The first thing we did was switch them from ACH to check. Does anyone have any other ideas to make up for these lost discounts?
What are some creative ways to make up for money lost from vendors lowering or eliminating early pay discounts?
Answers
1. No alternate suppliers who would be happy to compete? But I prefer a net price so that the so-called discount goes to COGS/Inventory.
2. Pay the "offending vendors" by P-card so that they lose a few % points. When they complain, negotiate your old discounts back.
1
Re #1 - I'm afraid not. We're a reseller and they have some respected brand names. We do have some private label stuff that we could push in its place, but it's not likely to gain that much traction.
Re #2 - that is a good idea! Thanks for the suggestion!
This has nothing to do with a change in our creditworthiness by the way.
You have to look at the big picture. Lowest possible accounts receivable balances are the target of most Accounting departments. It generates cash that is needed to run the business and reduces the amount of funds needed to be borrowed. Companies often overlook, that accounts payables can be used as cheap financing tools too. The longer your payment terms are, the less funds your company has to borrow.
Financing cost beside the point, the physical handling of the payment of vendor invoices is very time consuming and often creates major problems with large accounts. Setting up monthly payment systems with major vendors that will reduce the payment transactions to 1 per month and guarantee that existing invoice disputes are settled systematically every month have a much higher cost reduction potential then the nickel and dimes gained by paying vendors invoices daily to gain a discount.
Filed Under:
Cash Management