Survey Proposes Small businesses Would Give Discounts for Quick Settlement of Invoices
Disclaimer: there isn’t any real science behind it and this is not an official customer survey. What took place instead was, a small poll which asked smaller businesses during a two-week period the following question: Would you be willing to give a discount of (say) 10 percent to your customers in return for cash-on-delivery terms?
Believe it or not nearly half of the people asked said “yes.” Are you sure this is not the wrong answer.
You may ask: what is actually wrong with the notion of paying your customers to pay you quicker? Here’s a few but there are probably much more.
1) Even if quite a few customers consent to the discount, truth is, they still pay you after thirty days. The danger to this is that the cheaper price may become the conventional price; furthermore, it really is simpler to give away a discount, instead of getting it back. Are you really prepared to go down the road of arguing with the customer?
2) Your customer is aware that you have freedom on price – that places him in the driving seat, the next time you try and put your prices up!
3) Whether or not to get the discount is up to your customer – if he decides to not take it this time, where do you go if you were depending on that income?
4) The other side of that coin is that if you don’t need the cash at the moment, you may still end up having to hand out the discount, because you’ve offered it. So now you have got cash in the bank which you don’t need. It has cost you a lot to be put there but it’s gaining just about nothing.
5) You have put the financing of your business into the hands of your customers – that’s a bad place to be. Eventually, you might end up depending on a financial resource that you have so little power over and your negotiating position is altogether weakened.
The fascinating thing about this is that some debt factoring alternatives provide exactly the same outcome as giving your customer a discount but with none of these down sides. With this sort of debt factoring, your customer is not given the control over the fate of your cash flow. Primarily, the control of your customer relationships along with your funding specifications rest only on you. Trying to link these together can be a tragedy.
In the traditional days, your helpful local bank manager provided you with an overdraft facility which dealt with the ups and downs of cash flow and working capital. Nowadays, this scenario is almost gone. Debt factoring has stepped into the breach and truly needs to be taken seriously. Spot factoring or single invoice factoring is one financial method that could be ideal to your existing financial condition.
So the message is, don’t try and fund your business by offering your customers discounts. You might be sorry in the end. What you can do on the other hand is utilize a financial option that gives you the same outcome but which veers away from tainted customer relationships – DEBT FACTORING.
