An early payment discount (also called a prompt payment discount) is an incentive you offer clients to pay their invoice sooner than the standard due date. For example, "2% discount if paid within 7 days".
When it makes sense
- You have cash flow problems and need money quickly
- You invoice large amounts with long payment terms (Net 30+)
- Your clients are businesses that have flexibility in their payment timing
- The discount cost is less than what you would pay to borrow money short-term
The real cost
A 2% discount for early payment sounds small — but annualised it is significant. If you offer 2% off for paying 30 days early, that is an effective annual interest rate of around 24%. Before offering a discount, calculate whether this cost is worth the cash flow benefit.
How to communicate it
Include the early payment discount in your payment terms on the invoice. A common format is "2/10 Net 30" — meaning a 2% discount is available if paid within 10 days, otherwise the full amount is due within 30 days.
Alternatives to consider
- Request a higher deposit instead of discounting after the fact
- Shorten your payment terms from Net 30 to Net 7 or Net 14
- Offer card payments so clients can pay instantly
- Invoice more frequently (weekly rather than monthly) for ongoing work
Early payment discounts work best with larger corporate clients who have the cash to pay early but defaulted to their standard Net 30 terms. For smaller clients, simpler payment terms are usually more effective.
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