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Finance & Payments

Early Payment Discount

Also known as: Prompt payment discount, Cash discount

An early payment discount is a reduction a supplier offers a buyer for paying an invoice before its due date.

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Commonly written as terms like '2/10 Net 30' — 2% off if paid within 10 days, otherwise full payment in 30 — early payment discounts reward faster payment. For the supplier, they accelerate cash collection; for the buyer, taking them can be a high effective return on spare cash.

Deciding whether to take an early-payment discount is a working-capital trade-off: paying early ties up cash but the discount often exceeds the return that cash would earn elsewhere. Capturing discounts consistently requires efficient, automated invoice processing.

Frequently asked questions

What is an early payment discount?
An early payment discount is a reduction a supplier offers for paying an invoice before its due date — for example, 2% off for paying within 10 days.
Should a buyer take early payment discounts?
Often yes — the effective annualised return from the discount usually exceeds what the cash would earn elsewhere, provided the buyer has the working capital and efficient invoice processing to capture it.

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