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Disclaimer: The
content of these articles is to be used as a general guide only.
Professional advice should be sought before taking any action relating to
the points discussed in these articles.
EARLY PAYMENT DISCOUNTS
I am not in favour of early
payment discounts unless the real price is actually the discounted
price and in effect the customer is paying a surcharge for late
payment. I believe it is better to have confidence in your
collection skills to collect the full amount owing. Also, sometimes
your customer will pay late and still take up the discount. This
leaves you with the choice of collecting the remaining balance or
writing it off.
I doubt very much if the savings in faster collections
actually exceed the value of the discount. Of course, in some
circumstances such as in times of severe cash shortages and for some
industries, early payment discounts might be appropriate.
A few years ago I was preparing to pay an account from a new
supplier. In the mail that day was a statement offering me a 2.5%
discount if I paid the account by a certain date. This company lost
several hundred dollars by offering me regular early payment
discounts because I was planning to pay their accounts on time
anyway.
When I attended a GST seminar in November 1999, several questions
relating to early payment discounts were raised. It seems that you
as an Australian supplier will be required to issue a credit note to
your customer and show the amount of GST included in the credit when
your customer pays the account less the discount. This extra
paperwork will probably make it even less desirable to continue with
early payment discounts after 1 July, 2000. Certainly, it would help
if you contact the Tax Office if you plan to offer your customers
early payment discounts after this date.
This article is reprinted from
Rentons' Business Tips No. 7
© Copyright February 2000 ACS
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