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Many vendors normally print Net 30 days on their invoices for their standard payment terms. If your firm has the extra cash, call the vendor and ask if they offer an early payment discount. Call their financial manager or controller personally on the telephone and ask. Never regard what is written as the final word. Call and negotiate with the company directly to get a better deal.
Ignore terms written on invoices. If they happen to be in financial straits, your call will be welcome, you will be offered a discount (i.e. 1% 10, 1.5% 15 days, .5% Net 15, etc.). You decide what this equates to you as far as savings. It will depend upon the interest rate of your line of credit if your firm has one in place. Most do. Compare the annual savings to your borrowing rate and proceed.
Example: ABC Company offers .5% net 10. Your firm normally pays in 45 days, so if you take this discount on a $10,000 invoice, you will pay If they happen to be in financial straits, your call will be welcome, you will be offered a discount (i.e. 1% 10, 1.5% 15 days, .5% Net 15, etc.). You decide what this equates to you as far as a worthwhile savings. That decision will depend upon the interest rate of your line of credit if your firm has one in place. Most compare the annual savings you receive to your borrowing rate.
Example: ABC Company offers .5% net 10. Your firm normally pays in 45 days, so if you take this discount on a $10,000 invoice, you will pay $9,500 savings $500 when you pay the bill 35 days earlier. (45 days normally versus net 10).
Your decision whether to take the discount should depend upon whether the annual savings is financially better than your borrowing rate or not. Use this calculation for that determination.
