Cash discount
A cash discount is an agreed deduction from the invoice amount for payment within a short period, usually in the form «2% within 10 days, net 30».
Definition
Worked out, a cash discount is expensive for whoever grants it: two per cent for twenty days earlier corresponds, annualised, to an interest rate of over thirty per cent. As an instrument against late payers it is nonetheless effective, because it triggers the same calculation at the customer — with the sign reversed.
In bookkeeping the deduction is a reduction in consideration: it reduces turnover and therefore also the VAT on that turnover. Whoever books a cash discount as an expense reports turnover and tax too high.
Where to read it
What the software must be able to do
The cash discount is the case that shows whether a program really processes the payment or merely posts it: the deduction arises on receipt of payment, not on the invoice.
- Discount terms per customer, not just one global setting — terms are part of the customer agreement and differ.
- Recognition of the deduction when allocating the payment — otherwise a difference is left on every payment and gets written off by hand.
- Automatic VAT correction on the deduction, at the right rate — pro rata where one invoice carries two rates.
- Posting as a reduction in consideration rather than as an expense — otherwise turnover and remitted tax are too high.
- The discount deadline held separately from the payment term in open items, so the reminder does not chase a discount period that is still running.
- Behaviour on a late discount deduction: does the program recognise that the customer missed the deadline and deducted anyway?
Checked Aug 2026
More terms under Invoicing, payment and banking: Advance payment Allowance for doubtful debts Bad debt camt.053 Cancellation invoice Certificate of shortfall Credit note Creditor Current account Debt enforcement Debtor Default interest Delivery note Dunning eBill Final invoice IBAN Invoice number ISO 20022 / camt Open items pain.001 Part payment Payment term Pro forma invoice QR reference QR-bill QR-IBAN Quotation Receipt Tips TWINT as a payment method Visitor taxes