Discounts of early payment

• Overall


  Offering debtors (accounts payable) a discount for early payments and penalties for late payments

  This is not only beneficial for the debtors who are able to save money and therefore improve their cash flow, but it also positively affects the business’ cash flow status and profitability

  This is also effective if we negotiate extended payment terms from our creditors. This is known as ‘stretching accounts payable’

  Higher level of efficiency
• Advantages


  Reduces risk of late payments and associated costs

  Can increase customer loyal and improve customer relationships

  Improves working capital and will provide extra liquidity

  Reduces the risk of non-payment and bad debt
• Disadvantages


  Will decrease profit margins as any discount offered is paid directly from a business's profits

  Ability to forecast cash flow

  Track it’s cash flows carefully

  There is not guarantee that customers will keep paying quickly