2 min read
Definition
A prompt-payment discount is a reduction offered to customers who pay quickly — the same idea as an early settlement discount, viewed from the incentive side. It rewards fast payment and can meaningfully improve a business's cash flow.
In plain terms
From the payer's side, taking a prompt-payment discount is often a high effective return on cash — a 2% discount for paying 20 days early annualises to a large percentage. From the seller's side, it is margin traded for speed of cash.
Why it matters
Both offering and taking prompt-payment discounts are cash-flow levers worth understanding. See early settlement discount and trade credit as a cash flow tool.
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