The Procurement Glossary » Early Payment Discount

Early Payment Discount

Finance & Payments

Definition

A discount a supplier offers for paying an invoice ahead of its due date, such as '2/10 net 30'.

Explanation

Early-payment (or prompt-payment) discounts reward fast payment: '2/10 net 30' gives 2% off if paid within 10 days instead of 30. For buyers with spare cash, capturing them is a high-return use of money; dynamic discounting scales this.

Example

Taking the 2/10 discount on a RM50,000 invoice saves RM1,000 for paying 20 days early.

Related terms

• Dynamic Discounting — A flexible early-payment scheme where the discount varies with how early the buyer pays, agreed on a sliding scale.
• Payment Terms — The agreed conditions for when and how a buyer pays a supplier, such as 'net 30 days' from invoice date.
• Working Capital — The money tied up in day-to-day operations — broadly current assets (inventory, receivables) minus current liabilities (payables).
• Supply Chain Finance (SCF) — Financing arrangements, often bank-backed, that let suppliers get paid early while the buyer pays on normal terms.

Frequently Asked Questions

What is Early Payment Discount?

A discount a supplier offers for paying an invoice ahead of its due date, such as '2/10 net 30'. Early-payment (or prompt-payment) discounts reward fast payment: '2/10 net 30' gives 2% off if paid within 10 days instead of 30. For buyers with spare cash, capturing them is a high-return use of money; dynamic discounting scales this.

Can you give an example of Early Payment Discount?

Taking the 2/10 discount on a RM50,000 invoice saves RM1,000 for paying 20 days early.

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