Early Payment Discount

A price reduction offered for settling an invoice ahead of terms.

Area: Accounting
Also known as: prompt payment discount, cash discount
In this area: 51 terms of 259

An early payment discount — quoted as 2/10 net 30, meaning 2% off if paid within 10 days instead of 30 — rewards fast settlement. It is common where suppliers value cash certainty over margin.

The implied annual return is high, often above 35%, which usually beats what the cash earns elsewhere. Capturing it depends on invoices being approved fast enough to hit the window.

How it is calculated

Annualised benefit = (Discount % ÷ (100 − Discount %)) × (365 ÷ Days saved)

2/10 net 30 works out near 37% annualised.