Cash Discounts – Cash is King.
In the current business climate investors are moving away from fundamentals in evaluating a stock to a very detailed look at a firm’s balance sheet. One of the reasons for this paradigm shift is some companies are taking advantage of the allowance for bad debt to artificially inflate the company’s earnings. In doing so, the company’s fundamentals will continue to look strong when in actuality they have underestimated the amount of bad debt they are carrying in accounts receivable. Some businesses attempt to reduce the exposure to uncollectable debt by reducing the use of accounts receivable in general but there are cases when this is impossible. A predominate way of keeping accounts receivable to a manageable size is to offer cash discounts which benefit both the seller and buyer of a good or service.
A cash discount is a fixed percentage off of the cost of a good or service for prompt payment. For example if a painter provides a quote to paint a house for $1,000 but if the owner pays in cash at the time of service the painter will only charge $950. On the surface this situation gives the impression that the customer received a benefit from the cash discount in the amount of 5% of the quoted price but the painter received no such benefit. In fact the impression could be given that the cash discount was detrimental to the painter because the overall fee was reduced by $50. Digging deeper into the painters thought process benefits of the cash discount will become apparent. Firstly by receiving the payment in cash the painter does not have to worry about fees for a credit card transaction (2%-4%). Additionally the painter is then protected from charge backs and fraudulent credit cards due to identity theft. If the homeowner chose to finance the cost of the service then the painter would be exposed to the possibility of the homeowner not paying the debt. If this happens the painter would have to expend time in attempting to collect that debt or sell the debt to a collection agency at a loss. If the painter is paid cash at the time of transaction both of these scenarios are mitigated; there is no credit card fees to pay and there is no threat of a non paying customer.
Offering cash discounts is especially beneficial to small businesses because discounting the price of a good or service is outweighed by the overhead needed to collect on bad debts. A small business can still offer an accounts receivable function with a minimal staff to maintain it if a significant cash discount is offered. In larger organizations a full accounts receivable and collections staff is able to handle a sizable credit function, but by minimizing the risk of bad debt by offering cash discounts the company can focus on its core business while maintaining a lean accounts receivable staff.
Cash discounts are a great way to save money for the consumer as well as provide peace of mind to the seller. When the buyer has cash on hand to pay for a good or service quickly and the seller discounts the price for the prompt payment both parties win.
Cash Discounts – Cash is King
31-10-2010 by adminHow Can I Fix My Bad Credit?
24-10-2009 by admin
What can the credit repair companies do to fix my bad credit?
The credit repair companies cannot legally do anything to fix your bad credit that you cannot do yourself. Most credit repair programs include assistance in acquiring credit reports, dealing with the credit bureaus and creditors. As well as advice to improve your overall credit scores. In addition, many credit repair companies now offer credit monitoring services.
What is credit monitoring and will it fix my bad credit?
Credit monitoring is a service offered by many companies including Fair Isaac, the creators of the FICO credit scoring process. According to the Federal Trade Commission, credit monitoring may be worthwhile depending on the services that are being offered. It is wise to compare the services offered by the different companies as well as the price charged. Credit monitoring can alert you to possible cases of identity theft. Credit monitoring will not fix bad credit, but attempts to help consumers protect their credit status.
Will applying for a secured credit card fix my bad credit?
Secured credit cards are an option for anyone of any credit status. They require that you make a deposit into a savings account, which earns interest just like any other savings account. Your credit limit is equivalent to the balance in your savings account, minus any fees owed. Otherwise, they work just like a regular credit card. They are very similar to prepaid credit cards, except that they do report account activity to one or more of the major credit bureaus. Some companies which offer secured credit cards offer other services, like credit monitoring, for an additional fee. The idea behind secured credit cards is to help people with no credit history or bad credit histories establish a record of good credit handling.
Will applying for an EIN fix my bad credit?
This was a suggestion made by some credit repair services that is now prohibited by the Federal Trade Commission. An EIN or employer identification number is a number used by the IRS to identify a business. Those who do not own businesses are not eligible to apply for an EIN.
What can I do to fix my bad credit?
You can review your credit reports for inaccurate, obsolete or unverifiable information. You can ask the credit bureaus to correct the information. You can ask creditors to remove records of late payments or other negative credit history, when you have corrected the problem. You can hire a credit repair lawyer to help you or you can read a book about credit repair at the local public library. You can find sample copies of dispute letters on line at Credit Fix Solutions as well as other suggestions for do-it-yourself credit repair.
Can I really fix my bad credit?
The short answer is “yes” and once you do, you can use a credit monitoring service to protect your new and improved credit rating.