SUMMARY
In our business cash is king, and cash-FLOW is all about timing (i.e. getting paid on time, or even early). Many showrooms are shocked when I tell them that we’re switching as many of our accounts over to paying with credit cards as possible. Here’s why…
In the first half of this 2 part series, we discussed why credit card payments could be a valuable part of your business. If you want to learn more, check it out here: Cash is King – Why Getting Paid Faster Makes all the Difference: Part 1
In this follow-up post, we’re going to talk about more ways you can leverage credit cards to your advantage in your business transactions.
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QUICK JUMP
- Credit Card Rewards (an opportunity cost you shouldn’t ignore)
- How to Start Getting Paid Faster (and why it matters)
- Negotiating Early-Pay Discounts (getting paid fast can save you money)
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CREDIT CARDS: THE REWARDS GO BOTH WAYS
Our customers love credit cards, and for good reason. They’re smart spending tools for a number of reasons – credit cards are safer to use than debit cards for online transactions, and credit card companies usually offer consumer protection services in case of fraud. Protections aside, one of the biggest benefits of credit cards is the rewards points you can earn.
If you had the option to choose between two stores selling similar products for similar prices, but one allowed you to earn “free money” on your purchase – which one would you choose?
These systems don’t only benefit the customer – credit card rewards can be making your business big money too if you’re paying attention. We use a rewards card that gives us 3% cash back on almost every purchase. We try to pay as many vendors as possible with that card to get that 3% cash back.
If we were still making all of our payments on a debit card (or with paper checks), we’d be missing out on a major benefit. In our case, we not only take the cash back, but we also order gift cards to use as thank-you rewards, performance bonuses, and even promotions for staff.
Maintaining a good cash flow is all about understanding the timing of when you GET PAID vs. when you have TO PAY. If you’re not purposeful and consistent with your collections It can be difficult to predict when key customers and trade accounts will make a payment, but we’re all very aware of when our next vendor payments are due.
What if we had much more influence over our cash-in timing? Would it make a difference?
In my experience the answer is: Absolutely!
HOW TO START GETTING PAID FASTER
There are a couple of very simple ways to encourage your customers to pay you faster.
AUTOMATED COLLECTIONS
The first method is adopting an automated collections process. We have a system set up that automatically emails our customers an invoice with a “Pay Now” link, and we’re working on an automated follow-up system that will send friendly reminder emails for unpaid balances.
With a digital invoice already in their inbox, we don’t have to spend time tracking down receipts, making phone calls, and navigating clunky ACH payments – customers can pay their bill during the half-time commercial break.
The bottom line is – if it’s easier to do, odds are they’ll get to it sooner.
EARLY-PAY INCENTIVES
Another way we get our customers to pay early is by offering an early-pay discount or incentive. We charge a processing fee with our credit card transactions. (Always do your due diligence before implementing surcharges to make sure you’re collecting the right amount, the right way.)
Something we’ve started doing is offering to cover the processing fees if an account holder pays us early. Right now, we’re offering to waive the processing fee on account payments that are made within the first 10 days. This seems to be having a positive impact.
When you get paid early, your cash flow is healthier. With faster cash-in, you can turn around and pay your vendors faster too, which leads me to my last point:
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MAKING IT COUNT
Why does getting paid faster matter? There are a number of benefits to having more cash on hand, but there’s one big one that every showroom owner should know about.
EARLY PAY DISCOUNTS
Not to be mistaken with early pay incentives (which you offer to YOUR clients), early payment discounts are where you’ve negotiated a 1-3% discount with your vendors if you pay early (usually 10 days as opposed to taking the full 30-day terms).
Many vendors are in the same position as we are – they’re looking for ways to get paid faster. We’ve negotiated with many of our manufacturers to receive a 1-3% discount if we pay our bills early and, in many cases, we’ve gotten them to agree to take a credit card payment from us if we always pay on time. (We really push for both – an early-pay discount AND the ability to pay with a card, but we don’t always get both).
If you’re able to pay with a cash back credit card and get an early-pay discount, you could be looking at some serious savings on your day-to-day operations.
IT ALL COMES FULL-CIRCLE
If your customers are happily paying you faster and earlier with their credit cards, and you’re in turn able to pay your bills faster and earlier with a rewards card, I wouldn’t be surprised if you found an extra potential 3-6% net profit to your bottom line (once everything is flowing).
We’ve been pushing towards this and thus far the results have been very positive!
If you haven’t already started leveraging credit card rewards and early-pay discounts, as well as the benefits of getting your accounts onto a more regular “pay earlier” cadence, now might be a good time to do a little research and some profitability analysis. An automated system driven more by credit card payments, on both sides, could make a world of difference.
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