What is a cash discount truly worth?
Enticing customers to pay in full, on time or early is the drive behind offering cash discounts. But do they truly pay off?
There are a number of factors to consider when offering cash discounts and of course, not every circumstance will end on the same result. It really comes down to the customer you’re trying to entice with the offer.
If your goal in offering a cash discount is to motivate your chronic late payers or consistent problem customers to pay, forget it. They’re either in a consistent cash crunch or are so disorganized they couldn’t see passed their mess to bite the carrot you’re dangling anyway.
If however, your goal is to train new customers to pay early or on time, offering an initial cash discount might set the trend you’re after. If you can get them to pay their first few invoices within your credit terms, you may have helped them form a positive paying habit.
But there is a bit of math involved to decide if a cash offer is truly in your best interest. Before offering a cash discount, check out our article, Cash Discounts: Doing the Math. Understanding the math behind a discount will help you make a sound decision about offering one.