early payment discount
Definition
An early payment discount is a price reduction you offer customers who pay their invoice ahead of the due date. For example, you might let customers pay 2% less than the full amount if they pay within 10 days instead of the standard 30 days. Businesses use this to encourage faster cash flow rather than waiting the full payment period.
Example
You send a client a $1,000 invoice with terms that let them pay only $980 if they send payment within 10 days, which you might write on the invoice as '2/10 net 30.'
Watch Out
Early payment discounts can quietly eat into your profit margins, so always calculate whether the faster cash is actually worth the percentage you are giving away.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.