Giving Credit, Where Due --Dickeson
What credit terms are most frequently granted by printers? 2/10/n30—2 percent if paid within 10 days, net due in 30 days. Or maybe it's 1/10/n30—1 percent. Either way, it's a pile of money when you think about it as yearly rates.
Know what it amounts to on an annualized basis? A tad over 73 percent a year if you're using 2 percent. If you're using only 1 percent for 10 days quick-pay incentive it's a bit over 36 percent per annum. You knew that already, of course. Just wanted to remind you in order to make a point.
Any customer that doesn't take advantage of that generous allowance on both materials and labor has to be a borderline credit risk. Trouble is, many customers do take the discount even if they don't pay the invoice in 10 days—if the printer allows that to happen. And most of us do allow it to happen, don't we? We're so desperate for sales and cash that we accept improperly discounted cash and shut-up.
Think about this for a moment. We've spent all that money for a computerized estimating system to give us a target selling price and then we turn around and effectively give 36 percent to 73 percent of that price back to the customer by a quick-pay discount.
We buy new equipment because it promises to give us a payback in three years—33 percent annually. Who are we kidding? We harangue production for a 5 percent increase in efficiency. We holler if makeready waste increases by a few points. We're puzzled by the wide variance in job costs and general ledger profits. If every customer took advantage of that discount all year long we'd wind up in deep hot slop, wouldn't we?
I just don't get it, good buddies. There's a message here and we're missing it, somehow.