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Component Manufacturing dverti$er
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Don’t Forget! You Saw it in the
February 2017 #10211 Page #58
Lumber Briefs By Matt Layman Publisher, Layman’s Lumber Guide
The Save Money Series Part Four: The Real Cost of “Not Discounting” Invoices
Back in the good old days, when I was a rookie lumber broker, central That’s not all. If you do not discount, you cannot buy directly from zone SYP producers offered wholesalers a 5% discount which gave us the mills. You have no option but to buy from office wholesalers who incentive to work their wood outside Mississippi and Alabama. I offer make a minimum of 2.5% per order. Add another $25,000 to the total… that just to be aggravating. per month...$300,000 per year. OUCH! That’s why they call you five Also, back in the day, mills offered a 2% discount to all customers for times a day. Not discounting a $1 million inventory that turns every 30 paying invoices within the agreed upon payment terms. For truckloads and days actually costs you $366,400 per year. carloads, 2% 10 days after arrival (ADA) or after date of invoice (ADI) $1 million buys you a 100 truckload inventory. What’s that? You was normal. “Good” customers could negotiate 2% 30 days. Producers don’t buy that much? No problem. How many truckloads do you buy not only supplied the wood, they served as an intermediate financier. every month? Paying on time was worth more than 24% annual return on a credit line. Of course, everyone at least attempted to discount. Any customer who didn’t discount was considered a high credit risk, and ultimately would hurt you. They paid a premium for lumber and still do.
Multiply the number of monthly truckloads by $3,644 That is how much not discounting costs you.
Nowadays, discounting a carload saves you 1% if the invoice is paid I won’t even scare you with the costs for your lumber out of 5 days after arrival of the car (when it’s spotted, not unloaded). Truckloads warehouse from wholesale distributors. Try four times the office fetch the same 1% if paid within 10 days after date of invoice (the day wholesale number…$14,000 per monthly truckload annually. it ships, not the day it arrives). Not only have the discounts been cut in And you wonder why your margins are thin? That’s how the half and the days to discount been reduced, producers have squeezed an competitor who keeps under bidding you not only stays in business but extra day or two off the reduced discountable days. makes better margins. If this is you, your survival depends on discounting invoices. Do what it takes. While you are working that out, let me help you reduce that waste by 30% starting immediately. It will be the best investment you make during your entire lumber career…$13.44 per week could save you an average of $125 on every truck truckload you buy. Or, just ABSOLUTELY! Instead of reasoning what the savings are, consider keep doing what you are doing. The under-cutting competitor across town won’t mind at all. what not discounting actually costs.
One might wonder, “Why bother to pay the bill on time? Is it even worth it?”
If you have $1 million of inventory that turns every 30 days, use your credit line to discount invoices, and pay an annualized credit line interest rate of 4%, after allowing for discount days, you will need to use the credit line 304 days or 83% of the time. The annual interest cost of $1 million for 365 days is $40,000 (x .83)…$33,200. That’s what you pay in interest using the bank’s money to discount invoices. If you do not discount, and pay in 30 days, you are paying 12% annually for those extra 25 days, or three times as much…that is 300% A veteran lumberman, Matt Layman publishes Layman’s more…$99,600. Lumber Guide, the weekly forecasts and buying advisories
In this example, just the difference in using bank money to discount that help component manufacturers save money on lumber invoices versus not discounting costs you an additional $66,400 every purchases every day. You can reach Matt at 336-516-6684 or matt@laymansguide.org. year. PHONE: 800-289-5627
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