Earn 18 Percent on the Money You Spend at DMP
January 03, 2017
Chris Stange, CFO - 1/3/2017
Earning interest on your money is always a good idea. It’s the basis of how banks work and wealth is built.
When you buy items on credit, interest is a factor. A supplier offers an option that many people overlook. That option is the 1% Net 10 days you often see as part of the terms of your credit agreement. One of the things I like about my job is my conversations with dealers about how to save money or be more efficient. THIS option is one of the most overlooked, yet most lucrative tips I can give.
DMP is one of those creditors that offers these two payment terms options: Net 30 or 1% Net 10. Net 30 means you pay the full balance of your invoice within 30 days.
But is that the best option?
If you choose to use the 1% Net 10 option, that means you pay your invoices within ten days. You get to keep or take a 1% discount on the total of the bill. One percent isn’t much, but it can add up. Let me explain.
For example, if a vendor is offering a one percent discount off the cost of a product on an invoice, and you pay for the product 20 days earlier than you normally would, you earn a one percent return every 20 days. You’ll earn more than an 18% return on your investment every year. Where did I come up with this fantastic return? I’ll explain.
With 365 days in a year, there are about eighteen 20-day periods. If I can earn a one percent discount 18 times during the year, the result is an 18% annual return, which is especially great when bank loan rates are low. Even if I have to borrow money at a six percent annual interest rate, it makes sense to take advantage of the terms discount of 1% 10 Days. Even borrowing money at six percent seems worth it to get an annual return of 18%.
It has been my experience that it is almost always a good idea to take advantage of terms discounts. Taking the discount of 1%, you effectively earn around 18% a year on your money.
A small percentage adds up to significant savings.
In fact that 18% may be more than you could earn investing in the Stock Market. The S&P 500 gauges the performance of the stocks of the 500 largest, most stable companies in the Stock Exchange. It is often considered the most accurate measure of the stock market as a whole. The current average annual return from 1926 through 2011 is 11.69%. If you look at some numbers that are closer to our present numbers, from 1992–2011, the S&P’s average was only 9.07% and from 1987–2011 it was only 10.05%.
Earning 18% on your money is easily accomplished, and even if you have to take out a line of credit to be able to receive this discount it’s well worth it. If you have more questions about this or other ways that DMP can help save you money, feel free to give me a call today.