Rebates vs. Discounts: An Innovative Strategy for Accounts Receivable

January 30, 2019

In Monday’s post, we talked about the dreaded “Can I have a discount?” question. Below is a quick overview of what the buyer and seller usually want during this part of the negotiation.

(If you read Part 1, feel free to skip ahead a little bit)

Buyer

  • Wants the best possible value.
  • Wants to show their boss they got a good deal.

Seller

  • Wants to close the deal ASAP and secure their commission.
  • Wants a happy customer and the customer to feel good about it.
  • Wants to drive revenue for their own company.

During a negotiation, one risk for the seller is if they say yes to 5% off, the buyer may try upping their request to 10%. Then 20%. See how far they can go.

There’s also no guarantee the buyer will pay on time. If the contract says Net 30 and the buyer takes 60+ days to pay $100,000, there’s no reason the price tag of $90,000 — with the same Net 30 terms — will magically speed things up.

This takes us to today’s post where we’ll map out the FinanceFuel strategy of offering a rebate rather than a discount. The goal of this strategy is to achieve faster payment for the seller and provide some extra value for the buyer.

Here’s what the FinanceFuel process looks like:

1. Customer signs the contract (let’s stick with the $100,000 for this example)

There’s a big difference between a person who hasn’t made a purchase yet vs. a customer who has already signed a contract.

Once the contract is signed, there’s been a legal agreement that $100,000 is due. It’s no longer an abstract idea on a phone call.

2. A smart invoice is delivered with an incentive to pay earlier. The incentive is a rebate.

“Click this button to pay $100,000 in 24 hours and FinanceFuel will send you a $5,000 rebate.”

Couple things to note here:

  • FinanceFuel makes sure invoices are sent to the right person and department.
  • We confirm receipt of the invoice. A rebate does no good if it’s lost in an email filter
  • You choose the percentage. We can make recommendations for best practices.
  • FinanceFuel is providing the rebate, not you. So your customer is not being trained to ask for any type of discount in the future.

3. Let the customer decide

Your customer has a choice to make. If they have the ability to pay, why wouldn’t they pay earlier and get cash back?

But, if they’re strapped for cash and need the full 30 days, then you’re right back to the original terms. You didn’t lose anything. Plus you were able to confirm — through FinanceFuel — that you’re sending everything to the right person. This small but important step helps prevents late payments.

4. FinanceFuel spots the trends and reports them back to you

For example, what if we find that all of your healthcare customers are saying yes to the “pay in 24-hours rebate” option. Maybe the next move is to get rid of Net 30 altogether with this industry and establish a 1–3 day expectation for payment terms.

Or maybe there’s an industry that never takes the pay earlier option and we also find that this industry is notorious for paying 60–90 days overdue. This can also impact your strategy. Does the rebate percentage need to be larger? Do you need to ask for half at signature, half later? Or, if it’s really bad, maybe you restructure your sales and marketing efforts to go more at healthcare organizations with less focus on this other industry.

Bigger Picture

Imagine looking at your sales each quarter and not only seeing the total numbers from the contracts sold but also having this FinanceFuel predictability of how much money to expect in the bank 30 days from now.

This would allow you to start planning ahead, know which months might be a little lean, and which months will have cash reserves. Imagine the impact this could have on business decisions from financing to hiring to your investment in marketing, product, engineering, you name it.

What’s funny is the dreaded “Can I have a discount?” actually led us to a pretty exciting answer. We’d love to connect with you and share more about the rebate solution.

And, in the spirit of rebates, if you share this blog post today, we’ll send a Starbucks/Amazon gift card your way. Just throw an @FinanceFuel on LinkedIn or Twitter and we’ll connect.

Shall we set the timer for 24 hours?

FinanceFuel accelerates a business’ cash flow by speeding up Accounts Receivables. We remove the remedial processing and collection tasks so employees can focus on high-value work driving the business forward. You can learn more about FinanceFuel on our website or, if you’re interested in speaking directly with a member of our customer success team, send us a note (sales@financefuel.co) and we’ll get back to you right away. 

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