Giving Cash Rebates to stay in business

Giving Cash Rebates to stay in business (Full Version)

All Forums >> [Casual Banter] >> Off the Grid

Message

OrionTheWolf -> Giving Cash Rebates to stay in business (12/19/2008 7:51:50 AM)
Yesterday I was doing some software work for one of my clients. They told me they were giving a cash refund of 5% total money received from a customer, back to the customer. It totaled about $40,000. I asked why and they said this customer was having cash flow problems, and to help them stay in business they were refunding some of the money received from them. This company has about 18 million in sales a year, and that $40,000 comes right off the bottom line (meaning it comes right out of the net profits). Won't go into the many reasons why he did not just loan the money, but siffice to say that having it as an expense helped him some, and reducing the profit from this customer once will allow that customer to stay in business for years to come. What a novel idea I thought. Thoughts?

SilverMark -> RE: Giving Cash Rebates to stay in business (12/19/2008 7:53:45 AM)
Pretty unique and possibly a business saving idea....on both sides!

mistoferin -> RE: Giving Cash Rebates to stay in business (12/19/2008 7:54:24 AM)
What would be the benefit of offering a cash rebate vs. simply lowering the price in the first place?

OrionTheWolf -> RE: Giving Cash Rebates to stay in business (12/19/2008 8:11:22 AM)
They needed a cash infusion now, to be able to make payroll for a large project they are on. quote: ORIGINAL: mistoferin What would be the benefit of offering a cash rebate vs. simply lowering the price in the first place?

MisterP61 -> RE: Giving Cash Rebates to stay in business (12/19/2008 8:11:59 AM)
As a business major, let Me add My [sm=2cents.gif] worth here. Telling someone that you have reduced the price means that they may or may not believe that. Since I do not know all of the particulars here I am assuming (when I assume I make an ass out of you.... and well just you ROFL) that there was an agreed upon price and if the person providing the service said "that's a discounted price" you have to take them for their word or not. Now if the customer pays for the service and the provider says, "oh, by the way, here is a discount" and hands them back some of the money, it becomes real and tangible and the word of mouth business it will attract is more then paid for. OK, maybe that was more like [sm=2cents.gif][sm=2cents.gif][sm=2cents.gif] worth. MisterP61

Termyn8or -> RE: Giving Cash Rebates to stay in business (12/19/2008 8:41:14 AM)
Rebates are a big thing in new auto sales, probably for the same reason. T

LadyEllen -> RE: Giving Cash Rebates to stay in business (12/19/2008 9:00:38 AM)
We're in a bad place - costs incurred in Euros, and many customers who still think they can pay in Sterling as if the exchange rate were still 1.40 rather than 1.05. We're switching to Euro only charging and next year will say no to Sterling unless they want to pay a 15% surcharge to cover us for depreciation and changing money to pay suppliers. We may even not make any loadings to/from GB to avoid Sterling altogether. Meanwhile, this means we dont make enough Sterling to cover overheads so we have to change Euros to Sterling too! For now this isnt a problem as we still have a Sterling purchase ledger and suppliers are happy to get Euros at today's exchange rate rather than Sterling thats worth less every day. But we're offering up to 10% discounts from standard prices if customers can be flexible, book in advance (rather than 12 hours before they want a vehicle, which is normal even though they know they'll need one at least a week before!), pay early (we even offer a discount for paying on time!). No one else is offering such discounts - we could do well. Except that no one else was offering total carbon offset of the footprint to their product for no cost and that didnt go anywhere. E

celticlord2112 -> RE: Giving Cash Rebates to stay in business (12/19/2008 9:05:58 AM)
quote: What a novel idea I thought. Not all that novel (smart vendors nurture their clients' businesses in a variety of ways), although it's an excellent idea. I have never given a rebate as such, but when a good client runs on hard times I'm not at all above zeroing out the odd invoice here and there to help him through to better times--instead of giving the money back I just don't collect it in the first place.

NorthernGent -> RE: Giving Cash Rebates to stay in business (12/19/2008 9:24:38 PM)
Should be interesting when word gets 'round, and your client has hundreds of customers banging on his door and demanding a fair crack of the whip (in line with the bloke receiving the hand out).

OrionTheWolf -> RE: Giving Cash Rebates to stay in business (12/20/2008 6:47:20 AM)
He will likely tell them the same he told me. If they want to spend over $800,000 in a year, and show their financials and current projects, he would do the same. All of his business is word of mouth, because of his ethics in his business. Has nothing to do with fair, but to do with helping a customer stay operational so they can continue to be one of his top customers. It also may have to do with this owner not being native American. quote: ORIGINAL: NorthernGent Should be interesting when word gets 'round, and your client has hundreds of customers banging on his door and demanding a fair crack of the whip (in line with the bloke receiving the hand out).

Evility -> RE: Giving Cash Rebates to stay in business (12/20/2008 8:55:28 AM)
The concept of survival has been around quite a long time. It's about as novel as the wheel.

celticlord2112 -> RE: Giving Cash Rebates to stay in business (12/20/2008 8:58:17 AM)
quote: Should be interesting when word gets 'round, and your client has hundreds of customers banging on his door and demanding a fair crack of the whip (in line with the bloke receiving the hand out). Very interesting indeed. "Hundreds of customers" banging on the door is a problem most small businesses generally want to have. Especially if they're pissed off about something. I like a pissed-off customer. The pissed-off client has a problem for me to solve. That's business (and ultimately billing).

DarkSteven -> RE: Giving Cash Rebates to stay in business (12/20/2008 9:37:50 AM)
quote: ORIGINAL: mistoferin What would be the benefit of offering a cash rebate vs. simply lowering the price in the first place? First, the rebate is up front, while the payment will be down the road. Second, the company granting the rebate can charge it as a business expense, and I believe that it would get a more favorable tax treatment than a reduced price.

NorthernGent -> RE: Giving Cash Rebates to stay in business (12/20/2008 1:46:36 PM)
quote: ORIGINAL: DarkSteven quote: ORIGINAL: mistoferin What would be the benefit of offering a cash rebate vs. simply lowering the price in the first place? First, the rebate is up front, while the payment will be down the road. Second, the company granting the rebate can charge it as a business expense, and I believe that it would get a more favorable tax treatment than a reduced price. Assuming your accounting regulations are anything like ours, a cash rebate wouldn't wash. Essentially, this is a gift and it could be construed as a bribe. There are strict guidelines around gifts here, that are underpinned by a code of customer ethics aimed at ensuring all customers are treated fairly; which blatantly isn't the case in the OP scenario.

NorthernGent -> RE: Giving Cash Rebates to stay in business (12/20/2008 1:49:55 PM)
quote: ORIGINAL: OrionTheWolf He will likely tell them the same he told me. If they want to spend over $800,000 in a year, and show their financials and current projects, he would do the same. All of his business is word of mouth, because of his ethics in his business. Has nothing to do with fair, but to do with helping a customer stay operational so they can continue to be one of his top customers. It also may have to do with this owner not being native American. Were I him, I'd be finding new customers. Ultimately, he's subsidising someone else's poor performance and £25k will not save a struggling business. Philanthropy is admirable, but throwing good money after bad is futile and self-defeating.

celticlord2112 -> RE: Giving Cash Rebates to stay in business (12/20/2008 2:15:02 PM)
quote: Ultimately, he's subsidising someone else's poor performance and £25k will not save a struggling business. You don't know that. For that matter, neither does the person/business offering the rebate. It's a risk--as with all investments. If it works, a customer--and the future revenues to be derived thereof--are preserved. If it doesn't, then 5% of the year's billings is not an inordinate expense to bear, especially as the handling of it as a rebate has direct and immediate tax benefits to the rebating company. A contained downside with a significant upside is the hallmark of a prudent investment decision.

NorthernGent -> RE: Giving Cash Rebates to stay in business (12/20/2008 2:35:14 PM)
quote: ORIGINAL: celticlord2112 It's a risk--as with all investments. There's a balance between risk and return. To understand whether or not this is a risk worth taking, you'd need to understand the nature of the business and its activities; in particular, why is it struggling? Poor strategy, poor cash/liquidity management, poor investment decisions? Whatever the problem, throwing £25k at a business of which you can't possibly know the root of the matter, is not sound business. quote: ORIGINAL: celticlord2112 If it works, a customer--and the future revenues to be derived thereof--are preserved. Unless you know the ins and outs of this business and can see a solution in the offing, then you're pissing in the wind with this £25k. Businesses run on planning rather than a wing and a prayer. The better option is to use the money to increase your market size/share. quote: ORIGINAL: celticlord2112 If it doesn't, then 5% of the year's billings is not an inordinate expense to bear, especially as the handling of it as a rebate has direct and immediate tax benefits to the rebating company. Think of the opportunity cost of not investing that money elsewhere. quote: ORIGINAL: celticlord2112 A contained downside with a significant upside is the hallmark of a prudent investment decision. What on earth are you talking about?

OrionTheWolf -> RE: Giving Cash Rebates to stay in business (12/20/2008 2:40:31 PM)
Heh. Love how telepathy and far seeing works. The customer he is saving has not performed poorly, just made the wrong decision in his banking. My client was given access to his customer's financials and project cost reports before he made the decision to rebate this cash. Yes it is an expense. No it is not a gift, in fact the customer receiving the rebate has to treat it as income or expense reduction, both of which increase their taxes. quote: ORIGINAL: NorthernGent quote: ORIGINAL: OrionTheWolf He will likely tell them the same he told me. If they want to spend over $800,000 in a year, and show their financials and current projects, he would do the same. All of his business is word of mouth, because of his ethics in his business. Has nothing to do with fair, but to do with helping a customer stay operational so they can continue to be one of his top customers. It also may have to do with this owner not being native American. Were I him, I'd be finding new customers. Ultimately, he's subsidising someone else's poor performance and £25k will not save a struggling business. Philanthropy is admirable, but throwing good money after bad is futile and self-defeating.

celticlord2112 -> RE: Giving Cash Rebates to stay in business (12/20/2008 2:42:55 PM)
quote: Whatever the problem, throwing £25k at a business of which you can't possibly know the root of the matter, is not sound business. As the recipient of this particular largesse is a customer, not only is such knowledge possible, it's actually quite probable. Which knowledge, incidentally, invalidates the rest of your argument. quote: The better option is to use the money to increase your market size/share. New customers are a break-even proposition at best, and a loss leader most of the time. quote: Think of the opportunity cost of not investing that money elsewhere. I am. The opportunity cost of investing in a good customer vs the opportunity cost of not investing in that same customer. Or, the money spent ($40K) vs the revenues sacrificed ($800K) if that money is not spent. What investment options produce a 20:1 return on investment in the first year?

NorthernGent -> RE: Giving Cash Rebates to stay in business (12/20/2008 2:59:19 PM)
quote: ORIGINAL: celticlord2112 As the recipient of this particular largesse is a customer, not only is such knowledge possible, it's actually quite probable. Nonsense. You would have to send someone to the business to pour over their strategy, processes and performance statements to understand the root of the problem; even experienced auditors with an in-depth knowledge of a business, can struggle to get into the nooks and crannies. Having a chat with some bloke over a cup of tea saying: "yeah, we've just been unlucky, but £25k will tide us over and then we'll back on the straight and narrow", isn't akin to understanding the exact nature of that which is failing. It's a blind cash gift on a wing and a prayer. quote: ORIGINAL: celticlord2112 New customers are a break-even proposition at best, and a loss leader most of the time. More nonsense. More customers = increased contribution toward fixed costs that are already nailed down and covered. quote: ORIGINAL: celticlord2112 I am. The opportunity cost of investing in a good customer vs the opportunity cost of not investing in that same customer. Or, the money spent ($40K) vs the revenues sacrificed ($800K) if that money is not spent. What investment options produce a 20:1 return on investment in the first year? It isn't an investment. An investment involves sizing up all options and understanding the probability of a generating a return. This is simply handing over money in the vein hope that it will keep a customer a float. In the event business was a simple as your simple proposition, then you would simply hand over £25k every time one of your customers is in the mire. It ain't that simple, and the business in the OP is clutching at straws with what amounts to pie in the sky.

Page: [1] 2 next > >>

Collarchat.com © 2025

Terms of Service

0.046875