A cash discount is a deduction that a seller offers to a buyer in return for paying a bill before the scheduled due date. The seller will usually reduce the amount that the buyer owes by either a small percentage or a set dollar amount. Cash discounts are also called early payment discounts. The purpose of cash discounts is to motivate customers to pay their bills within a certain time frame. By offering a cash discount, the seller can access their cash sooner than if they didnt offer the discount. An example of a cash discount is a seller who offers a 2% discount on an invoice due in 30 days if the buyer pays within the first 10 days of receiving the invoice.
Cash discounts are not the same as surcharges. A cash discount is when a seller increases the price listed on the shelf and then reduces it at the register when customers choose cash. On the other hand, a surcharge is when a seller adds a fee at the point of sale to the credit card price.
Cash discounts benefit the seller because they increase the likelihood that a buyer will pay quickly. Cash discounts provide the seller with cash faster, which can be better than waiting 30 or more days to receive the full amount. Being paid early means that the seller can then reinvest the cash back into the business sooner.
In summary, a cash discount is a reduction in the amount of an invoice that the seller allows the buyer in exchange for paying the invoice earlier than its normal payment date.
