WHAT IS AN EARLY PAYMENT DISCOUNT?
Many businesses delay payments to their suppliers as a means to hold on to their cash longer.
In order to incentivise their customers to pay on time, suppliers often offer early payment discounts. Currently, the average discount offered by most B2B suppliers is approximately 4%. In fact, the longer the payment terms, the higher the discount offered.
WHY COMPANIES AREN'T PAYING THEIR SUPPLIERS ON TIME
Surprisingly, there is little evidence to show that early payment discounts actually incentivise buyers to pay on time.
This could boil down to the simple reason that businesses simply do not have the necessary cash flow to make early payments and take advantage of the early payment discounts.