Being able to take advantage of all early payment discounts can be a major
saving to a company.
If a saving of even 1% was realized on purchases every month that amounts
to 12% per year.
At selling price, that could be an improvement of as much as 18% in gross
profit margin.
Even if the funds had to be borrowed from the bank to make the payment,
the savings would be significant.In summary, the key point here is that time is money.
If payment terms are used creatively, the business can effectively use
supplier's money at no cost and have the business enjoy the savings.
Hence, comparing the payment terms and flexibility of suppliers is an
important aspect of assessing prospective suppliers.You can develop a series of questions from the above information that you can
ask your various suppliers or kinds of suppliers.
Summary
Now, you have learned how complex formulating an effective pricing
philosophy can be. There is much more to an effective pricing philosophy than
charging what the market will bear and simply reacting to the
pricing of your competitors.
A well-thought-out pricing policy will consistently reflect
the market strategy of the company. As well, it will
consistently reflect the pricing philosophy and business
style of the company.