Capturing Vendor Discounts
For most companies today, cash flow is the name of the game. To help keep cash flowing into their coffers more smoothly and predictably, many companies offer what are known as prompt-pay discounts — incentives to encourage customers to pay their invoices not just on time, but early.
Prompt-pay discounts are often referred to as “2/10, net 30” discounts. Translation: If the payment amount is due in the typical 30 days, you’d receive a 2% discount if you pay it in 10 days instead of 30.
A discount of 1% for paying 20 days early equates to an annual interest rate of approximately18%.
Aberdeen Group Discount Capture Rate:
- Best-in-Class (Top 20%): 90% early payment discount capture rate
- Average (Middle 50%): 47% early payment discount capture rate
- Laggard (Bottom 30%): 18% early payment discount capture rate
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