I’ve been reading a lot about the advantages of offering Early Payment Discounts to my customers and I’ve decided that it’s a good option for me. One thing I was thinking about is that as a...

I’ve been reading a lot about the advantages of offering Early Payment Discounts to my customers and I’ve decided that it’s a good option for me. One thing I was thinking about is that as a small business time is often tight. I had a look at some advice on calculating an Early Payment Discount http://www.wikihow.com/Calculate-an-Early-Payment-Discount and now I’m wondering how long will it take for me to set up Early Payment Discounts?

1 Answer | Add Yours

boomer-sooner's profile pic

boomer-sooner | College Teacher | (Level 1) Associate Educator

Posted on

It should not take long to set up an Early Payment Discount (EPD), especially as a small business.  There are two steps needed to set up an effective EPD program.  First, the company offering the program needs to determine at what rate will the majority of the accounts receivable find the program attractive.  This can be determined via industry standard if there is one, or by polling the accounts receivable.  This step ensures you are not offering a program not advantageous to your customers.  For example, a 2% EPD may not be an incentive enough for your customers to agree to the EPD.  The first step is to determine what your company can afford versus what customers find an attractive discount.

The second step is the easiest part and will vary on how you calculate invoices.  Once the EPD is determined, simple processing can be placed into almost all electronic billing products to calculate the EPD.  Excel and other spreadsheets are the easiest to use for inputting these calculations, but programs such as QuickBooks also have this option.  The most time consuming, but universal option is to calculate the rate by hand which only requires the bill and a calculator. 

The initial time up front determining the effective EPD is the only major time crunch on your part.  Once determined the calculation time should be minimal. 

We’ve answered 318,954 questions. We can answer yours, too.

Ask a question