Average SMB Offers 4.1% Discount for Early Payments 

Small and medium-sized businesses (SMBs) face an uphill battle in persuading their business-to-business (B2B) customers to pay irregular, ad hoc payments — those that are made once, twice or a few times a year — on time. With limited leverage, they often have little recourse other than to offer their buyers discounts for paying on time. 

In fact, the average discount offered by SMBs for early payments is 4.1%. Since the average dollar value of an ad hoc payment is $10,026, this means SMBs are offering discounts of $411 per payment, on average, according to “Fixing Small Business Payments,” a PYMNTS and Ingo Money collaboration based on surveys of 693 U.S. SMBs and 880 business buyers of any size. 

Get the report: Fixing Small Business Payments 

Many SMBs offer even higher discounts for longer payment terms. The average discount given on payments with 20-day terms is 4.3%, for example, while the average discount given on those with 30-day terms is as high as 4.8%. For the average $10,026 ad hoc payment, this could mean spending as much as $481 of that payment on the chance it might entice the buyer to pay by the contractual due date. 

Incentivizing Buyers to Pay on Time is a Challenge 

Enabling suppliers to alleviate their late payment problems and acquire their needed working capital is an issue that impacts not only suppliers, but also their customers during this time of supply chain challenges. 

Read more: Growing Concerns About Inflation, Supply Chains Garner ‘All Hands on Deck’ Response 

However, there is little evidence to suggest that offering a discount will have any effect. As much as late ad hoc payments might tie up an SMB’s cash flow, the hard truth is that there is not much they can do to incentivize their buyers to pay on time. Although many SMBs offer buyers discounts for early payments as an added incentive, there is little evidence to suggest that these discounts have their desired effect. 

Ad hoc vendor payments for which buyers are offered discounts are received either early or late, rather than on time, PYMNTS research found. The opposite is true of payments for which buyers do not offer discounts: They receive most of their payments on time, rather than early or late. 

It is difficult to say for sure what impact — if any — the discounts for early payments play in shaping these trends. 

Building Supplier Loyalty During Supply Chain Crisis 

One key service buyers can implement to help alleviate their SMB receivers’ late payment problems is instant payments. The incentive for buyers is not only to accommodate SMBs’ need for working capital, but also to monetize speed and choice. 

There is an appetite for SMBs to pay for speed — and therefore an opportunity for buyers to monetize both speed and the choice in how those payments will be received. PYMNTS found that 54% of SMBs would be willing to pay a fee to receive instant payments from buyers. 

Another incentive for buyers is that instant payments drive supplier loyalty and choice. Perhaps not surprisingly, most SMBs want to do business with buyers that offer free instant payments. But, in today’s fragile supply chain environment, there is growing evidence that buyers want to do right by their small suppliers. 

With the right systems and processes in place, buyers can offer choice, including instant payments, to those valued suppliers.