Being a CPA I always push people to assess their cash-flow situation. Sometimes generating cash-flows means you need to give up a little to get something. For some it is the incentive to provide payment terms on invoices such as 2/10, net 30. Meaning, take 2% off the total if invoice is paid in 10 days, or pay the net amount in 30 days.
This is a beneficial payment structure as it generates cash for both the business and their customer. The business receives a quick injection of cash sooner than normal, allowing for payroll, loan, or taxes to be paid out in a timely manner. The customer receives the service or product at a 2% discount and benefits from significant savings/investment. I say investment because the customer receives a discount rate investment which yields a high effective annual percentage rate.
Let's do a little math. For example if the terms are 2% / 10 days or net 30 days, the effective annual rate is [ 360 days / Net Days - Discount Days ] * [Discount rate / ( 1 - Discount Rate) ]. Therefore the effective rate is [ 360 days / 30 - 10 ] * [.02 / ( .98) ] = 14.69%. As you can see you incentivize your customers to pay earlier because they receive an effective annual percentage rate of 14.69%. If you can find a no risk investment that yields 14.69% in an active market let me know.
Another option to increase cash flows is to accept credit card payments. By offering customers the ability to pay with a credit card, you incentivize the customer to pay. The incentive comes in various forms depending on what type of card the customer uses. By using a rewards type card, a customer may earn points towards an airline ticket, cash back, or other rewards offered through the issuing bank. In additon to rewards, the customer also draws on their line of credit with the issuer, potentially extending their payment date, or even allowing the customer to make a payment in a time when their cash flow is low.
Accepting credit cards is not absent of cost to the business. See my interchange fee post for a discussion of applicable processing costs. These costs vary from 1.69% to 3.8% of the sale. These rates are similar to offering discount payment terms.
If you consider the cost of going through collections on a customer that hasn't paid, giving up a little, through discount payments terms and/or credit processing fees, is better than giving up everything by not receiving any payment.
If you are looking to offer credit card processing as an option take a look at Connected Pay's cost saving virtual terminal and merchant account program.
Connected Pay's online payment service requires no software installation, no website is required, and no programmer is needed. You don't need anything special to accept credit cards by using Connected Pay's service. If you are ready to make it easier for your customers to pay you and save you time, please contact Connected Pay today to begin focusing more on your business. Contact Us at Connected Pay or Info@connectedpay.com.
