Video: Quick Payment Discount

In this lesson, Nick Palazzolo, CPA, breaks down the mechanics of quick payment discounts by explaining various payment terms and the incentives they create for early payment. Nick uses an example of a one million dollar payable to illustrate different outcomes depending on payment timing, emphasizing the financial sense in managing cash flows effectively. He walks through the importance of understanding common payment terms like "2/10 net 30" and shows how to calculate the cost of giving up a quick payment discount using a standard formula. Additionally, Nick discusses cash management strategies from both the paying and receiving ends of the transaction, reinforcing the concept that cash has greater value today than tomorrow.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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I owe a million dollars. Now, normal terms, and this is just agreed upon by the company, it could be 312 net 45. It could be 115 net twelve. Like, whatever it is, this is a more common one. So be familiar with how to read that. Definitely need to know that. And if we were to say, okay, if I pay within, let's say, seven days, I get a 2% discount. If I don't pay within ten days, then the rest is due within 30 days. Repeat that.

I owe a million dollars. Now, normal terms, and this is just agreed upon by the company, it could be 312 net 45. It could be 115 net twelve. Like, whatever it is, this is a more common one. So be familiar with how to read that. Definitely need to know that. And if we were to say, okay, if I pay within, let's say, seven days, I get a 2% discount. If I don't pay within ten days, then the rest is due within 30 days.

So if I pay within ten days, the million dollars, I get a 2% discount. If I don't pay within ten days, well, then the rest is due within 30 days. Now, yeah, I could pay on day 20, but why would I? I would just wait until the 30th day and pay it then. You don't pay your credit card bill early. Actually, that's not true. I pay it early sometimes, just for peace of mind, but technically, in proper cash management, you wait until the very last day to pay your bill. In a company, it's not your money, it's the company's money.

So it doesn't feel as hurtful when you see that large credit card bill coming up. All right, so memorize this formula.

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Conceptual Framework and Standard-setting for Business and Nonbusiness Entities

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