Early payment discount
Also called 2/10 Net 30
A discount for paying before the due date, written like 2/10 Net 30: 2% off if paid within 10 days, otherwise the full amount within 30.
Early payment discounts trade margin for faster cash. Whether they're worth offering depends on your cost of capital: for the buyer, taking 2/10 Net 30 is equivalent to earning roughly 37% a year on the money.
They also create a common deduction: customers who take the discount after the window has closed. Each one needs a decision, to accept the difference or chase it, and a consistent policy behind it.
Related terms
- Payment terms (Net 30)The agreed conditions for paying an invoice. Net 30, for example, means the full amount is due 30 days after the invoice date.
- Short paymentWhen a customer pays less than the full invoice amount, leaving a balance that needs to be explained, accepted or collected.
- Invalid deductionA deduction the customer isn't entitled to under the agreement, such as a duplicate claim, an expired discount or a penalty for something that didn't happen.