If you purchase an inventory item on  a credit account with a vendor and they offer you discounted payment terms, for example 2% 10 Net 30,  what do you do? Do you pay Net 30 and keep the money in your account longer or do you grab that discount? If you are super smart you will take the discount, which usually accounts for a reduction in cost of 1-2%, depending on the vendor. If you were to put that extra money in a savings account that yields 5%/year you would only net .2% per day for 20 days, a 1/10 of what you would earn by paying the piper early.

Now that you have made the super smart choice of paying your vendor early, how to account for that in Quickbooks? You chart it as Discount Earned or Other Income. This extra dough you didn’t have to shell out for your product counts as Income in your business. Pretty neat, right?

So now that we have established that you are super smart, pay your bills on time, and earn an extra 1-2% per invoice paid early; how does your vendor see you? As a top notch customer who they want to retain. What do top notch customers get? Great pricing! So, after you have paid your invoices early and have established a relationship with your vendor, you should see if you can negotiate discounts based on bulk or tenure so you can yield an even higher profit at the end of the day. It is win/win. Your vendor is happy because you are paying your bills on time (early even!) and you are able to reap a nice financial reward!

 

Cristina Garza

Accountingprose

o: 480-359-6149 || f: 866-611-6989