money_3.pngGetting paid is one of the hardest tasks for any organisation. Late payment of invoices has a huge impact on cash flow, particularly for SMEs. One way to encourage customers to settle their accounts quickly is by offering early payment discounts – a percentage reduction on the bill when settled in advance of the payment deadline.

asset-3.png Your business needs payment as soon as possible.

An unpaid invoice on your balance sheet costs your business through:

  • Debt interest.
  • Administrative costs.
  • Wasted time.

Convincing clients to pay early reduces the administrative burden of processing invoices, helping lower your business running costs and improving the health of your balance sheet.

“Results from over $170 billion of spend processed in JPMorgan Xign’s business settlement network show that on average 30 percent of suppliers will select discount terms if offered to them.”

Financial Services Technology

our business needs to ensure it is paid. asset-19.png

In these austere circumstances, every business is struggling to pay its invoices. Your customers will have several debtors, each of whom is lobbying for payment. By offering an early payment discount:

  • Your business jumps to the front of any queue for payment.
  • Your business is much more likely to receive payment from a customer who is struggling financially.

“In an environment where insufficient liquidity was cited as the prime determinant of payment delays, the impact on businesses has been that over 30% of the survey respondents’ invoices fell overdue, placing an unwelcome strain on cash flow.”

Atradius Payment Practices Barometer 2011

asset-25.png  Delayed payments are riskier

Most businesses are struggling with cash flow issues. The longer a payment remains outstanding, the greater the risk the debt will never be repaid. Offering an early payment discount encourages debtors to pay sooner rather than later, helping to minimise the risk of non-payment.

“Once a receivable is 120 days past due, there is a 20% chance that it will never be collected.”

The Business Owner

full-lead-to-cash-process.png  Your business will have more working capital available

Whenever a payment is received, your business has more working capital available. By encouraging early payment of invoices, your business:

  • Can invest in business improvement schemes for increasing future revenue.
  • Can settle invoices and avoid late payment charges.
  • Can pay down debts.

“Excessively late invoices accounted for 6.0% of domestic and 5.3% of foreign receivables.”

Atradius Payment Practices Barometer – Results Spring 2012

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  Lowers your own borrowing costs

With more cash available, your business immediately benefits by:

  • Having to borrow less cash.
  • Having more cash available for investing in business development.
  • Reduced borrowing costs and interest payments.

“Survey respondents in Western Europe posted an average DSO of 51.4 days, which is notably higher than the average payment term (38 days) reflecting the volume of invoices that are paid late.”

Atradius Payment Practices Barometer – Results Spring 2012

But where does CRM software fit into early payment discounting?

By uniting CRM and Accounts Payable data, your business gains even greater insights into your customer base. This helps you marry up sales opportunities with your understanding of their financial situation. CRM software helps:

  • Identify clients who would most benefit from early payment discounts.
  • Identify opportunities for using early payment discounts as a “sweetener” for larger orders from existing clients.
  • Track full communications history between you and a customer to assess the efficacy of early payment discount offers.

CRM software provides the tools needed to bring Accounts Payable and Sales departments into closer collaboration for the benefit of your business and your clients. Early payment discounts are just one tool to help keep your business financially solvent, and CRM software can help you keep a handle on its success.