When negotiating payment methods, it is important to consider the circumstances of both parties.
Success in payments depends not only on how much, but also on when and how.
Recurring payment and one -time payment are two alternatives for fulfilling obligations. The choice between one or the other (either as a collector or as a payer) will depend on the circumstances.
It is necessary to know how to examine the environment and analyse the repercussions of choosing one option or another . In this way, we will obtain better djibouti email list supplies at lower costs, facilitate sales and strengthen treasury and finances in general.
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What are recurring payment and one-time payment?
A lump sum payment is made in one go , regardless of the time between the performance and the consideration. For example, someone places an order with us and we agree to pay over three months. This is a very common alternative, especially in transactions with retail customers.
Recurring payments, on the other hand, are repeated a certain number of times. For example, we agree with a supplier that we will pay the invoice in 30, 60 and 90 days. It is therefore widely used in commercial and financial operations of all kinds and, in particular:
In the financial field , positions can be liquidated from time to time, interest can be paid, capital amortization can be reimbursed, cash flows can be exchanged in different currencies, etc.
In the provision of services . This is typical in those in which, in exchange for a fee, we obtain access or coverage of the service for a period.
In leases . For example, we pay the monthly rent for the premises or the annual rent for farmland.
Differences between one-time payment and recurring payment
Although they serve the same purpose (fulfilling an obligation), their consequences are different in various areas .
Capitalization or financial discount
When we have payments or collections made at different points in time , we cannot simply compare them. We need a certain amount of interest or discount to allow us to value them.
Let's imagine, for example, the decision between two payment options :
A one-off payment of 100,000 euros today.
Twelve payments of 10,000 euros per year. The first of these would be made in one year. Let us assume that there is no probability of default.
We cannot simply say that we get 20,000 euros more with the recurring payment. We would be adding up amounts from different points in time, which is like adding apples and oranges. Instead, we will have to calculate at the same point in time how much the one-off payment is worth and how much the recurring payment is worth .
To do this, we can use an interest rate . For example, with 1% interest, 10,000 euros today is equivalent to 10,100 euros in one year. To put it another way, with 1% interest, 10,000 euros in 12 years is equivalent to 8,874.50 euros today.
In our example, we see that at 1% interest, the sum of recurring payments is equivalent to 112,551 euros today. This would be profitable for the debt collector. However, at 3%, it is equivalent to 99,540 euros, which would be profitable for the payer.
The conditions of the contract
The method of payment often has an impact on other conditions . It serves as a 'bargaining chip' for negotiating delivery times, guarantees, the organisation of logistics operations, etc.
When considering whether a one-time or recurring payment is better, we must weigh all the implications on the terms and execution of the contract.
So we cannot make a purely financial assessment . In reality, we are comparing different contracts. One of the two formulas may give us a current value of the most advantageous collection or payment, but it is not all about price. We must find a balance.
