Paying bills ahead of schedule has its benefits: Remodelers can receive a “purchase discount,” ranging from 0.5% to 2%, from suppliers for bills paid 10 to 15 days before they are due.
Paying ahead of schedule is a standard practice at CM Squared, a lighting design and electrical services company, in Harrisburg, Pa. “It’s a simple way of adding to the bottom line,” president Christian Malesic says.
The company reviews all of its material purchase agreements to see which suppliers offer early payment discounts.
Malesic says that although remodelers might not have the cash in hand to shift their payment schedule because they are waiting for a client to pay, “It’s sound financial policy to take advantage of these credit terms, even if you have to borrow the money.”
Last year, purchase discounts on materials saved lighting design and electrical services company CM Squared $4,900
One percent is a common discount for paying within 10 days instead of 30 days of receiving an invoice. So for a remodeling company that annually purchases $400,000 in materials, a 1% discount can add $4,000 to its bottom line. In addition, Malesic points out, it’s another way to improve relationships with suppliers.
But shifting the payment schedule can be stressful and can cause short-term issues with cash flow.
If a bill is normally due on the 27th of the month, to make the shift to paying on the 7th, you’ll have to pay the supplier twice in quick succession: on the 27th of one month, then within 10 days, on the 7th of the next month. “I don’t want to encourage building up debt,” Malesic says, “but it’s worth borrowing money at a low credit rate to take advantage of this.” After you’ve made the shift, you’re back on track to pay every 30 days — it’s just on the 7th instead of the 27th of each month.
—Nina Patel, senior editor, REMODELING.