2 min read
Definition
An early payment discount (or prompt-payment discount) rewards paying an invoice ahead of terms — say 2% off for paying 20 days early. Annualised, that 2% is worth far more than 2% a year, so taking it can beat your cost of finance.
In plain terms
It is a reward for paying suppliers quickly. The catch is it looks small, but because it recurs on every invoice, its true annual value is large.
Why it matters for your company
Compare the annualised discount against your cost of borrowing before deciding. It can be worth financing to take. Use the early payment discount calculator.
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