Thoughts · Finance

Cash flow pays the bills.

Q: What does 2% 10 net 30 mean?

It is a payment term that gives the buyer a 2 percent discount if the bill is paid within 10 days. If the buyer skips the discount, the full balance is due in 30 days.

Q: Is a quick pay discount worth it?

Sometimes. On a $70,000 invoice, 2 percent is $1,400, and you collect $68,600 about twenty days faster. Adam treats it as a tool for specific seasons, not something every customer has to get.

Q: How do I get customers to pay faster?

Measure your average days to get paid over the last 6 to 12 months, push that number toward zero, and offer a quick pay discount to larger clients when you need cash sooner. Then keep your average days to collect smaller than your average days to pay.

The quick pay discount, and the habit behind it.

By Adam Weisner5 min read

A large percentage of businesses fail because of cash flow, not because they weren't making money. The phrase burned in my head from my time at the University of Washington's Pacific Coast Banking School is, "Profits cure ills. Cash flow pays the bills."

There are deeper ways you need to deal with cash flow issues. But sometimes you just need to generate some quick cash. There's one strategy every single business can apply, and it's the most underrated cash flow strategy I know: the quick pay discount.

The short version

Offer a small discount, say 2% 10 net 30, for paying sooner.
Larger clients will usually take it. One of my clients collected $70,000 twenty days faster.
It's a tool for specific seasons, not something everyone has to get.
The long-term fix is your AR/AP delta: bring money in faster than you pay money out.

The $70,000 text.

I had just started coaching this client. He was dealing with some cash flow issues, and he texted me to tell me what he had going on.

His terms were like most people's: net 30. Most businesses take whatever the default is in QuickBooks or whatever their industry does, and that's their terms.

I recommended a quick pay discount. You say, "I'll give you 2 percent off this $70,000 invoice; it's 2 percent 10 net 30." He collected $70,000 twenty days faster by simply offering it.

What 2% 10 net 30 means.

On an invoice, "2% 10 net 30" is a payment term offering a 2 percent discount if the bill is paid within 10 days. If the buyer skips the discount, the full balance is due in 30 days.

Standard terms

$70,000

Net 30

Incentivized terms

$70,000

2% 10, net 30. Pay within 10 days and save 2% (a $1,400 discount).

Why would a customer bother? Larger clients have payables departments who won't mind cutting a check early if it means a discount. The large corporations especially have people who are simply processing payments. If the client is in a good financial position, they have a person in the payables department who wants to be a hero. The money doesn't matter to them the way it matters to you.

Is it worth $1,400?

For you, as a small business owner, if you can get $68,600 cash twenty days faster, is that worth the $1,400 discount? Maybe. Remember, cash flow pays the bills. For the small business owner, that may mean short-term survival.

Consider 2 to 5 percent as a strategic discount to start. It's a tool for use during specific seasons. You don't have to offer it to everyone; just add the tool to your utility belt.

You can put it on all of your invoices and change your terms. Or you can use it when you're struggling with cash flow. Make a couple of phone calls. Send an email: "We're offering a quick pay discount." Watch how many people bring it in.

The habit behind it: your AR/AP delta.

There is no single factor more important in a business from a financial perspective than cash flow. It's how payroll is made. It's how you build your reserves. It's the way to freedom.

Simply put, you need to bring money in faster than you pay money out. That's the difference between your average accounts receivable (AR) days and accounts payable (AP) days, your AR/AP delta.

Measure your AR days.Take the last 6-12 months of payments received and, for each one, count the days from when you billed the client to when cash hit your account. Don't estimate. Take the time. You might have net 30 terms, but I bet it's not 30 days on the dot.
Measure your AP days.Count the days between when you received a bill and when you actually paid it. If you pay bills the day they arrive, that's fine. I just want you to have the option not to. Ask your vendors for terms: if you've got thirty days, ask for forty-five or sixty.
Keep AR smaller than AP.Push the days it takes you to get paid down toward zero, ideally paid the day you make a sale. Push the days it takes you to pay a bill up, within the terms you've agreed to.

One guardrail: stretching terms is not the same as paying late. Negotiate terms up front, pay on the date you agreed to, and pay small vendors and contractors fast. Proverbs 3:27 says, "Do not withhold good from those to whom it is due, when it is in your power to do it." Their payroll matters as much as yours.

Biblical wisdom on cash.

Proverbs 21:5 says, "The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty."

Managing cash this way requires discipline and patience. It's proactive, rather than reactive. Proverbs 27 says it plainly:

"Know well the condition of your flocks, and give attention to your herds, for riches do not last forever; and does a crown endure to all generations?" (Proverbs 27:23-24)

The AR/AP delta is one of three parts of what I call the Net 7 Method: keep seven months of operating cash reserve, close your books within seven days of month-end, and manage your AR/AP delta. When I joined Sherman Research, applying it along with the other laws in my book is how we went from losing money to paying off the company's debt completely within two and a half years.

Next steps

Try it this week.

Pick your biggest open invoice.Call or email the client and offer 2% 10 net 30.
Run your AR days.Last 6-12 months of payments. Real numbers, not estimates.
Run your AP days.Then call one vendor and ask for longer terms.
Write down your delta.Check it again at the end of every month.

Go further

The Net 7 Method.

The Net 7 Method is Law 3 in my book, Biblical Business, including how to set your seven-month reserve target and close your books in seven days.

Get the book ↗

If you want help getting your cash flow and finances under control, I coach a small number of Christian business owners and CEOs: work with Adam.

More: A business that runs without you · Ideas aren't your problem · Christian business coach · North Idaho & Spokane

Questions

FAQ

What is a quick pay discount?

A small discount you offer a customer for paying sooner than your normal terms. Start around 2 to 5 percent, for example 2% 10 net 30.

What does 2% 10 net 30 mean?

A 2 percent discount if the bill is paid within 10 days. If the buyer skips the discount, the full balance is due in 30 days.

Is a quick pay discount worth it?

Sometimes. On a $70,000 invoice, you give up $1,400 and collect $68,600 about twenty days faster. Use it in the seasons you need it.

How do I get customers to pay faster?

Measure your AR days, push them toward zero, offer a quick pay discount to larger clients, and keep your days to collect smaller than your days to pay.