Should you offer an early-payment discount?
A discount for early payment trades a slice of every invoice for cash sooner. See what it costs for the year and whether it beats what borrowing costs you.
An early-payment discount is worth offering when it costs less than the financing it replaces. Annualized, 2% for paying 20 days early works out near 37% a year — so it pays off mainly against costlier borrowing or a real cash shortfall.
The math
How this works
What does 2/10 net 30 mean?
It is shorthand for payment terms: take 2% off if you pay within 10 days, otherwise the full amount is due in 30. The first number is the discount, the second is the early window, and the number after the word net is the normal deadline. You will see variations such as 1/15 net 45 or 3/10 net 60 depending on the industry and the size of the invoice. Written on an invoice, it tells a customer's accounts payable team exactly what they can claim and by when, which is why larger customers recognize it on sight.
Is an early-payment discount worth it?
Work out what the discount costs you as an annual rate, then compare that with what borrowing costs you. The discount buys the money for the days between your early window and your normal terms, which is 20 days in a 2/10 net 30 arrangement. Giving up 2% to be paid 20 days sooner is a rate in the thirties on an annual basis, so compare it against your own APR rather than a rule of thumb. That makes a discount an expensive way to borrow in ordinary months and a sensible one when the alternative is a missed payroll, a late supplier, or financing you can't get. It can also earn its keep if faster payment keeps invoices from aging into write-offs.
How do I get customers to pay faster without a discount?
A lot of the delay is process rather than unwillingness. Invoice the day the work finishes, send it to the accounts payable address instead of your day-to-day contact, and put a calendar due date on it rather than a phrase. Ask new customers during onboarding how their payment run works and what a complete invoice looks like to them, because a missing purchase order number can park a bill for weeks. Offer a payment method that takes one click, and follow up the day after the due date rather than a month later. None of that costs you margin, which is the main advantage it has over a discount.
Questions people ask
What does working capital freed mean?
It is the cash that stops being tied up in unpaid invoices once customers pay sooner. Collecting the same revenue 20 days earlier means roughly 20 days' worth of invoices sit in your account instead of in your receivables. That's a one-time improvement to your cash position rather than extra revenue, and it stays with you as long as the faster payment pattern holds.
Why does my borrowing rate matter here?
Because the discount is a substitute for borrowing. If being paid earlier lets you carry a smaller balance on your line of credit, the interest you avoid is the real benefit of the discount. When your borrowing rate is low, the discount has to be small to make sense; when borrowing is expensive or out of reach, a larger discount can earn its place.
What if customers take the discount and still pay late?
It happens, and it quietly turns the discount into a plain price cut. Make the condition explicit on the invoice, so the discounted amount applies only if payment arrives by a named date, and check the deposit date before you accept the lower figure. If a customer does it twice, move them back to standard terms.
Can I offer this to only some customers?
Yes, and that is often the better approach. Offer it where the timing genuinely helps you, such as your largest invoices or customers who habitually pay at 45 days, and leave your fast payers on standard terms, since you gain nothing by discounting money that was already arriving on time. Apply the same terms consistently within a customer group so the offer doesn't look arbitrary.
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This is an estimate to help you think, not financial, tax or legal advice. Finli is not a bank and does not lend. Your own numbers, and your banker, beat any calculator.