Every firearms business can benefit from customers paying promptly. Little wonder, then, that so many businesses offer discounts and incentives to speed payments. Is your shooting sports equipment business profiting from offering discounts or, more importantly, are you reaping the savings available from taking advantage of discounts offered by suppliers?

Despite a thriving economy and high levels of consumer confidence, according to the National Retail Federation, shoppers continue to seek discounts — as should more shooting sports equipment retailers.

Many retailers closely follow the old adage: Always delay cash outflows. For a surprising number of firearms and tactical equipment business owners and managers, that means always paying bills on time but never before they are due. In reality, however, most businesses would be better off paying a bill early to take advantage of the trade discount.

Discount, What Is A Discount?

A discount is defined as a deduction from the full amount of a price or debt in return for prompt payment to a special group of customers or for quantity purposes. Specifically, a cash discount refers to a reduction in the price of an item for sale allowed if payment is made within a stipulated period.

In effect, the seller is offering to make the sale for the listed price reduced by the amount of the discount. In accordance with this interpretation, it is customary for the seller to view discounts as a deduction from the sales price and for the buyer to consider them as a deduction from the quoted or list price of the item or product purchased.

For the Trade Only

A “trade” discount is a discount on the list price granted by a manufacturer or wholesaler to buyers in the same trade. To a large extent, a supplier’s trade discount is based on what is common within the industry or how eager it is to have the retailer as a customer. Some suppliers may offer a generous trade discount and some will offer none at all. Discounts are, however, usually negotiable.

Suppliers may allow a business so-called “trade” discounts if payment is made in cash, if payments are received within a specified period of time, etc. The amount of the trade discount is typically one or two percent if payment is made within 10 days. Full payment is normally due within 30 days if the discount is ignored.

The supplier’s discount is usually shown as part of the credit terms on the invoice. Discounts are usually listed as “1/10, Net 30” or “2/10 Net 30” “1/10” or “2/10” indicates the amount of the discount offered and the number of days available to take advantage of that discount. Thus, “1/10” means that a one percent discount is being offered if the payment is made within 10 days of the invoice’s date.

“Net 30” indicates when the full amount of the invoice (without the discount) is due if the discount is not taken. In the above examples, the net amount of the invoice is due within 30 days of the invoice date.

To illustrate, the stated credit terms “2/10 Net 30” means that while the credit period is 30 days, the buyer may deduct two percent of the amount of the bill if payment is made in 10 days from the date of the invoice. Should the firearms and tactical equipment business receive a sales invoice totaling $500 dated July 6, with credit terms of “2/10 net 30” it means the supplier is offering a two percent prompt payment discount.

If the retailer pays that invoice within the 10-day period, on or before July 16, it can deduct $10 from the invoice, paying only $490. Waiting until before Aug. 5 the end of the 30-day credit period, requires payment of the full amount. 

Profiting From Discounts

As a general rule, every firearms and tactical equipment retailer should always take advantage of discounts of one percent or more when offered by suppliers that require full payment within 30 days. If the supplier offers payment terms extending beyond 30 days, it may be more advantageous to skip the discount and delay payment until the full amount is due.

Of course, in order to decide more precisely when to take a discount, a retailer must compare what would be earned by taking the discount to what it would cost to borrow money in order to have funds available to make an early payment to a supplier.

The Cost of Discounts

The decision to take or not to take advantage of a trade discount is usually based on a comparison of the cost of the discount to what the business can earn by taking the discount. If what can be earned by taking the discount is greater than what it costs, a firearms and tactical equipment business should definitely take advantage of the trade discount.

A retailer taking advantage of a discount should consider the early payment a loan to the supplier. Consider, for instance, a supplier who offers a discount if their invoice is paid within 10 days, or accepts full payment within 30 days. When this supplier is paid within 10 days, instead of waiting the full 30 days, it is actually borrowing money from the customer for 20 days.

Bargaining Bargain Discounts

A number of businesses have discovered that trade discounts and payment terms are negotiable, although not every retailer has the clout with its suppliers to negotiate better payment terms and discounts. If a buyer does quite a bit of business with a supplier, has a good credit record or is able to exercise quite a bit of control over its suppliers, it can often impose favorable payment terms.

Naturally, the amount of the discount and the time in which it is available will usually vary greatly. To a large extent, a supplier’s trade discount is based on what is common for the supplier’s line of business. Some suppliers may offer a generous trade discount and some will offer none at all. Discounts are, however, usually negotiable.

One business might realize significant savings by negotiating standard payment terms from 30 to 45 days. Others have encouraged suppliers who didn’t normally offer discounts to give one in return for immediate payment — or by paying slower when they did not.

To Discount or Not to Discount

Obviously, every firearms and tactical equipment business would benefit from prompt customer payments. Prompt customer payments mean improved cash flow, the reduced need to borrow for working capital and far fewer collection problems. Whether a business should offer their customers discounts for prompt payments, larger purchases, to increase sales, get rid of old inventory or as a good will gesture, requires some thought.

In reality, discounting costs the firearms and tactical equipment business money, usually directly off the bottom line. To illustrate, consider a product normally sold at $100 to realize gross profit of $15. Offering a relatively small 5 percent discount to arrive at a selling price of $95 will result in a gross profit of 10 percent. With that 5 percent discount, profit has dropped by 33 percent. A 10 percent discount reduces profit by 66 percent. Obviously, to ensure that discounts don’t give away too much or end up losing money, numbers should be crunched to determine the increase in sales needed to compensate.

Every firearms and tactical equipment business owner or manager should view two different perspectives: the impact to the bottom-line and the effect on cash flow. The option that strikes a balance between those two perspectives will help increase the operation’s cash flow — without sacrificing bottom line profits.

There are always going to be price-sensitive customers and buyers. Thus, the necessity of offering discounts makes computing whether that discount will still allow a profit from each sale, and how much that profit will be, requires knowing the cost of the goods sold.

The Cost of Goods Sold (COGS) is the price paid for a product, plus any additional costs necessary to get the merchandise into inventory and ready for sale, including shipping and handling. This method is pretty straight forward and easy to use and implement in a low-volume, high-cost-per-item retail operation:

COGS = Beginning Inventory + Purchases - Ending Inventory

Discounting Discounts

In addition to the cost to the business’s bottom line, discounting all-too-often conditions customers to devalue the operation’s products or service. Prices will rarely be taken at face value and the expectation created that prices will be reduced upon request.

When price is a sticking point for customers, finding alternative solutions may be required. This can mean new ways to source, manufacture or purchase products or services less expensively rather than reducing the firearms and tactical equipment operation’s profit margins.

Discounts are a two-way street. Few businesses can afford to pass up discounts offered by suppliers. On a similar note, few retailers can succeed in business without offering their customers, or select groups of customers, a discount. Can any firearms and tactical equipment business afford to ignore trade discounts offered by suppliers or not offer discounts to their customers?