Negotiate with your payees for an early payment discount to offset your fees. 


Early Payment Discount - Case Study - Where Everyone Wins

 

Ken has a construction business and has an existing American Express Platinum Business card account. His American Express representative Annie, has encouraged Ken to sign up to Payment Logic in September.

 

On the 1st October, Ken receives a statement from his supplier Ace Timber for $20,000.00 for materials used on his building project. Unfortunately, Ace Timber does not accept American Express and as a result, Ken considers using Payment Logic to pay Ace Timber. 

 

Traditionally the terms for payment offered by Ace Timber to Ken for this payment are strictly 30 days. Ken knows that he needs to pay the amount in full by 31st October. Ken wants to explore the prospect of using Payment Logic to get an early payment discount with Ace Timber so he calls Jane at Ace Timber. He asks if he pays the account within two days of the statement date (i.e. 3rd October, 28 days early) could he get a 3% discount. After a brief discussion, Jane mentioned she wasn’t happy paying a merchant fee but was open to offer Ken a 2.5% discount on his invoices if he paid them on the 3rd of each month.

 

On the 1st of October, Ken extracted his payment details from Xero into Payment Logic and paid Ace Timber $19,500 ($20,000 - $500 discount). Jane saw the money in Ace Timber's bank account on the 3rd of October.

 

In doing this, Ken benefits by: 

  • Receiving full reward points for the payment and the fee

  • Utilising up to 50 days interest free from his American Express Platinum Card

  • Receiving the 2.5% discount, Ken has saved $500 from Ace Timber and paid a processing fee of $514.80 - thus only costing $14.80 in total

  • Utilising the tax advantage of claiming the fee as a business expense and by also using the credits from the GST on the fee

  • Utilising the points to offset major travel and entertainment expenses that are normally paid using cash from the bank

  • Saving time using Payment Logic’s platform which allows a direct integration from his Xero accounting system

 

In doing so, Jane also benefits:

  • She receives greater certainty that the payment will be made

  • She receives this payment early and therefore improves ACE Timber’s business cash flow

  • She doesn’t have to pay a merchant fee for an immediate payment. Jane would prefer to build the relationship with her clients by offering them the discount in lieu of paying the merchant fee

 

In this example, all of the parties are winners; Ken, Jane, Annie, American Express and Payment Logic!