Jason Bader of the Distribution Team demonstrates why it’s a good practice for distributors to get cash discounts from their suppliers (and not to give them to their customers!) in his article Skipping Cash Discounts: The Loan Shark of Distribution.
Up until recently, Bader accepted the general theory that it is a good idea to take cash discounts, when possible, when you pay your suppliers. In his experience, most distributors take cash discounts in times of strong revenues and solid cash flow; but when the business starts slowing down they tend to opt for extended dating. There may be times when it is unavoidable, but in general it’s a bad practice.
As Bader demonstrates mathematically, if you don’t take advantage of the cash discounts presented by your suppliers, you are essentially borrowing money at the highest interest rate most will ever experience. In essence, you are paying loan shark rates to delay payment! Click here to read the full article.
Jason Bader is the managing partner of The Distribution Team. The Distribution Team specializes in providing inventory management training, business operations consulting and technology utilization to the wholesale distribution industry.
The Distribution Team