Prompt Payment Incentives

• In Event: Tangible Rewards and Incentive Framing

Abstract

Customers often forego generous prompt payment incentives. We examine a cause of this economically inefficient behavior. When suppliers frame incentives as penalties rather than discounts, we find that (1) missed incentives result in higher cognitive pain and perceived costs, (2) perceptions about what constitutes paying early, on time, and late changes, and (3) customers prefer to pay more rapidly. We also find that when suppliers frame incentives as penalties rather than discounts, (1) missed incentives cause superiors to evaluate responsible subordinates worse and (2) there is a greater preference for the accounting method that accurately reports inventory costs and highlights management inefficiency.

Authors

• Ling Lin Harris, University of South Carolina

• Scott B Jackson, University of South Carolina

• Kun Liu, University of South Carolina