Alright everyone, this is something I picked up in a Finance class and I have been eager to get some 'tried and true' feedback on it. Here goes:

If a time-sensitive discount on an invoice is presented to you, do you take it?

The feedback from our Finance professor was an absolute 'YES'. No matter the size of the discount. His reasoning was this: even at a discount of 2% of the total invoice you are saving capital - capital that is available for other purposes. Like being invested in short-term instruments that yield earnings... compounded earnings.




Now for the 'tried and true' aspect: What would you do for the above situation? I am very curious to see the feedback from users in the forum, psychology plays such a large role in decision making and I am not sold that the Finance perspective is completely accurate in this model.

Please add your comments and vote in the poll.

RW

__________________
Funny, I don't remember being absent minded...

I was raised to always live within my means. I pay my bills on time and will take a discount if it is offered. More money in my pocket is a good thing!!!

__________________
Jenn Gorrie
Real Estate Webmasters

If I have the available capital to pay for the time sensitive discount then absolutely. I am always trying to save my own capital. 'A penny saved is a penny earned'.

__________________
Kevin O'Brien
Outer Banks Property Management | Outer Banks | Outer Banks Beach Blog
"It's always a great day in paradise"

You should add a third option such as "maybe - it depends." I will take discounts if they make financial sense, but in some cases the discounts offered are so small that they are not worth it depending on what kind of returns you are getting on your money. Although with the recent drop in interest rates, the rates on savings and money markets have been taking a hit thus making such discounts more attractive.

__________________
Portland Real Estate | Portland MLS | Portland General Contractor
Milan Cole, Broker
Oregon First
(503) 953-3416

I just signed up hosting for an additional website and took the 2 yr discount instead of paying for 1 yr. Does that count?

__________________
Kevin O'Brien
Outer Banks Property Management | Outer Banks | Outer Banks Beach Blog
"It's always a great day in paradise"

I was raised the same way. I can't stand not paying my bills on time. I usually pay my credit card bill within two days of when I get it in the mail.

__________________
Celebrate the moment

Smith Mountain Lake real estate

I don't think an expense should be taken without proper capital in the first place. So if a discount is offer to pay sooner then I'd take it hands down, and would welcome the notion in the future.

__________________
Steve Castaneda, Realtor
Keller Williams Realty
The MyHomeHouston Team

Specializing in Houston Real Estate. Feel free to visit my Houston Real Estate Blog or read about Real Estate Technology for agents.

It is about the value of money now vs. money in the future. What is your capital worth now against its future value. The discount for paying now must outweigh the value of the amount you are going to pay in the future.

__________________
Kevin O'Brien
Outer Banks Property Management | Outer Banks | Outer Banks Beach Blog
"It's always a great day in paradise"

Btw shameless time sensitive REW reminder, the template special ends Friday May 23, at 4PM, after that no more waived setup fees

http://www.realestatewebmasters.com/...rey/5224/show/

__________________
Webmasters who spend their energies upholding the spirit of the basic principles [Of Google] will provide a much better user experience and subsequently enjoy better ranking than those who spend their time looking for loopholes they can exploit. Google.com

I understand the point, and in general the professor is correct.

But there are situations where that decision would be incorrect in certain circumstances - such as the persons not having the extra cash money available (or sufficient credit left @ a reasonable interest rate) in the first place.



A potentially erroneous assumption - particularly in today's market.


Many persons are over-leveraged on debt. Credit card rates can be 32%. [For reference: http://www.usatoday.com/money/perfi/...-charges_N.htm ]

So, depending on the discount - they need to take into account how much the money is going to cost them to make the purchase today vs. how much they are saving if they are making the purchase with say a credit card check.


And beyond that, if they ONLY have $X amount of credit left - choosing between using that entire amount of $X credit to save $Y today, or using it to "live on" for the next month for food/groceries, etc - they are probably better off surviving, rather than saving $Y.

__________________
Kentucky Horse Farms - Louisville Kentucky Real Estate - Lexington Kentucky Real Estate
Serving the Louisville KY metropolitan area including Jefferson County - Prospect Shelby County - Shelbyville Oldham County - Goshen, La Grange and the Lexington KY metropolitan area including Fayette County - Lexington Woodford County - Versailles Scott County - Georgetown Jessamine County - Nicholasville