Cash Flow

-So Steeph, how's the cash flow situation? Any better?

-Not really. No. The more we sell the less cash we seem to have.

-Yes, I know. It's called overtrading.You gotta have to figure out the quicker way of turning the sales and cash.

-But how Babara? That's the question.

-Well, did you think any more about offering earlier settlement discount?

-Oh yeah, we talked about most of it. They sounds quite interesting. It seems that if we offer 1% discount, about half of our customers will pay in 10 days.

-Well that would make a big difference of cash flow.

-But if we offer 2%, 3 quaters of our customers will pay within ten days.

-That's great! So why don't you do it?

-Oh come on Babara, margin is small after all already. I don't see how we can afford to offer these discounts! If we give it 2% discount, we will loose thousands of dollars of the year!

-Do you know how much exactly?

-Well on average month of the sales on 25,000 dollars, it costs over 400,000 of the year!

-What if you offer 1% and half customers use it?

-Well it already costs 15,000 of the year.that's a lot of money, Babara!

-But don't forget your financing cost, Steeph. Financing of cash flow gap means you pay for the bank on 300,000 dollars of interests. I will doubt that if you offer the 1% discount,you will save almost thousands on the financing cost.

-So what are you saying is the real cost of the discount? Will it only be 500 dollars more?

-That's right. And your cash flow for the month will increase by over 8000 dollars.And with the 2% discount,you will have extra 16000 a month.

-Wahoo!That much!We could really use that extra cash, Steeph!

-Mmmuh...I still think 2% is too much!

-Then why don't we offer 1%?

-Mmmuh. Babara?

-Well, it's not my decision. But if I were you, Steeph,I will really think very seriously about early settlement discount.

-Ok, I get the point. If you really can make that big difference, we will give it a try.