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What Is a Cash Discount?

Malcolm Tatum
By
Updated May 16, 2024
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A cash discount is a marketing and client relations strategy that is often employed to provide consumers with added incentive to do business with a particular company. In some instances, the cash discount has to with a percentage or flat rate discount that is extended when a customer pays an outstanding invoice within a specified period of time. In other situations, the cash discount is applied when a consumer chooses to pay for goods and services using cash currency rather than some alternative form of payment, such as credit cards.

Traditionally, the discount is an offer that is included either in a contractual agreement between a vendor and client. The terms of the offer usually have to do with early payment for an outstanding invoice. As an example, the vendor may issue invoices with a standard payment cycle of thirty days. If the client chooses to remit payment to the vendor within ten days of the issue date on the invoice, a discount of some sort is applied to the customer’s account.

The cash discount may appear as a credit or line item on the next month’s invoice, or be applied to the next purchase. On rare occasion, a vendor may include the terms of the discount on the invoice, with instructions for the customer to pay a slightly lower amount if payment is sent within the window of time specified.

A newer application of the cash discount has emerged in recent years. Some vendors are now offering instantaneous discounts on products if the consumer pays in cash, rather than using a credit card. One example of this approach is with gasoline. Many consumers are not aware that a vendor pays a fee in order to process a credit card payment. In order to entice clients to pay in cash and thus avoid the fee, a vendor will offer discounts off the standard price. The consumer saves a small amount off the regular price, while the vendor avoids paying a processing fee on the transaction.

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Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By anon942336 — On Mar 27, 2014

Can you tell me if there are any regions in the world where giving cash discounts is not an accepted practice.

By anon326753 — On Mar 23, 2013

How will a firm's cash cycle be affected if the firm begins to take the discount offered by suppliers, all else being equal.

By anon181159 — On May 28, 2011

Is it common for businesses to pay by cash, as in paper money, or is it not a recommended way to purchase stock or goods in larger quantity in order to get a trade/cash discount.

By anon41986 — On Aug 18, 2009

What would be the correct lingo to place on an invoice to encourage customers to pay with cash/check instead of a credit card for the vendor to avoid the processing fee? Credit card transactions may incur a 3 percent invoicing premium with a 3 percent cash discount already showing on cash transactions.

By gnw — On Jun 11, 2009

Can the customer use credit memo to pay their invoices and take cash discount at the same time?

By mdt — On May 31, 2008

Depends on the terms the company set for claiming the discount. For example if the terms specify the discount is good for thirty days from the invoice date rather than the actual purchase date, but do not specify if it must be received within thirty days of the invoice date, one could say it is still ethical to claim the discount, provided the postmark on the payment was before the thirty day mark. However, if the postmark is after the thirty day window, yes, I would say that would not be good business ethics.

By metienne — On May 29, 2008

Is it unethical for a consumer to take the cash discount after the time; for example a company send an invoice on 3/1/2008 on a 2/10, n/30 and the buyer send payment on 3/29/2008 minus the discount is that unethical?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
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