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The Truth About Discounts
Discounts can be beneficial to both the seller and buyer under certain circumstances. One of the primary reasons for the seller to offer discounts for early payment are the relative financing costs of accounts receivable that are saved by the seller for early payment versus the cost of early settlement discounts. Another primary reason relates to the degree of the sellers need for early payments due to the company’s cash flow requirements. Offering cash discounts for early payment however, has its down sides, such as noting that debtors have a tendency to take the discounts whether they qualify for them or not. Collecting on these “unqualified” discount deductions can then become a headache and, if let go, eventually unnecessarily inflate receivables, which could cause borrowing rates to increase if overall deductions get out of hand. Other topic you would like to know is the accounts receivables aging schedule, use one of our tools Business Debt Recovery Chart
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