What are the pros and cons for a company to take purchase discounts offered from suppliers?

ANSWER

Expert Michael Lim's Answer:

 Most suppliers offer some kind of discount for quick and/or timely payment.  They are usually referenced as by their terms (e.g.) 2%/Net 10, which means you will get a 2% discount if you pay within 10 days.

The upside is obvious.  You will get a discount upon payment if you pay early.

The downside is that if you pay early, you are losing your ability to utilize their bill as a credit facility (i.e. If you pay their bill early, you lose the ability to use that money for some other purpose).

Michael Lim, CPA

California

16 yrs experience

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128 Ans.