Early Payment Discount
A small reduction offered to customers who settle an invoice ahead of its due date, used to speed up cash collection.
How it works
An early payment discount, or prompt payment discount, rewards customers for paying before the due date. A common form is 2/10 net 30, meaning a two per cent discount if paid within 10 days, otherwise the full amount in 30. It trades a little margin for faster cash and a lower days sales outstanding.
Is it worth it
Discounts can be costly when annualised, so weigh the margin given up against the value of the cash. They suit businesses that are cash-tight or carry slow payers. Model the trade-off and your resulting cash position with the Merion business tools before committing.
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