CEO Tools Blog
Ramp Up Cash Flow --> Most Profitable Sale!
BUSINESSWEEK published an article not long ago pointing to all-time peak delinquencies in collections (the credit manager's index hit its most bottom level at that time). The late-payers are everywhere...and they are endangering your business!
So, here's another great article and idea from our good friend Abe WalkingBear Sanchez with thanks and attribution to "The Wholsesaler" website:
Click and print the article to see how to collect faster and better during this recession and on out into the future! Just a simple discount coupon instead of a prompt pay discount will change the customer's behavior to just what you want.
Very best wishes, Kraig
PS - As an update and if the link doesn't work for you, here is WalkingBear's article from last time:
Ramp Up Cash Flow & The Most Profitable Sales
BY ABE WALKINGBEAR SANCHEZ
Old military funny money finds new life in business credit.
An old idea applied to business increases cash flow and sets up the most profitable sale...additional sales to existing customers.
During the Vietnam war U.S troops and sailors in Asia were paid in funny money, i.e. mpc (military payment certificate).
This funny money which was also called “monopoly money” was in use up until 1973.
You could convert mpcs to U.S. dollars upon leaving a designated mpc zone, but while in these zones all you could do with it was go to the post exchange or ship’s store and convert it to the local currency.
Interesting, but what does this have to do with improved cash flow and the most profitable sales?
Companies sometimes offer credit customers a 2-10-N30 payment term. i.e. the customer can take a 2% discount off the invoice amount if they pay it within 10 days otherwise the full invoice amount is due in 30 days. The idea being to spur cash flow.
Any customer not taking advantage of a 2-10-N30 early pay discount fails to do so for one of two reasons:
They don’t have the financial ability to do so — no money
- The sales and credit guys failed to explain that a 2-10-N30 is worth a 37.24% Annual Rate of Return.
Where else can you get 37.24% return with no risk?
However , there’s a problem with early pay discounts in that sometimes customers will cut a check for payment on an invoice, less 2%, on the the 10th day, but will not release the check until the 30th day or the 60th day, thus defeating the very reason why the discount was offered in the first place.
This further creates additional work and cost for both seller and customer in the pursuit of the unearned discount.
I’ve never liked 2-10-N30 terms for these reasons.
The Best of MPCs and Early Pay Discounts There is a way to use an early pay discount to improve cash flow and also bring the customer back to buy again thus gaining the most profitable sale, additional sales to existing customers.
Rather than offering a 2-10-N30 term a seller can send out along with an invoice a VCDC; A Valued Customer Discount Certificate for 2% of the invoice amount.
Each VCDC would carry the same # as the invoice it applies to and thus would be easy to track.
The VCDC would clearly state that if the invoice the VCDC applies to is paid within 10 days of the invoice date the customer can use the VCDC on their next purchase.
If a customer pays in 15 days, cut them some slack and honor the VCDC on that next most profitable sale.
The end result?
Improved cash flow and more repeat sales.
Abe WalkingBear Sanchez is an International Speaker / Trainer / Consultant on the subject of Cash Flow and Enhanced Sales.
The endorsed consultant for STAFDA and PEI, WalkingBear has spoken to over 300 TEC/Vistage CEO groups internationally.