Example
An early payment discount written as 2/10 net 30 means 2% off if the client pays within 10 days.
Also called a reduction, an allowance, or trade terms when it is standing.
What it means in practice
A discount on the document is honest; a discount hidden in the rate is a lower price you can never go back from. Put it on its own line so the client can see the full value of the work and what you took off it.
Check what it costs before offering one. A 10% discount on a job running at a 25% gross margin removes 40% of your margin, not 10% of it.
Where it shows up on the paperwork
A discount belongs on its own line, either against the item it reduces or under the subtotal. Early payment discounts belong in the terms line, written as the client's accounts team writes them: 2/10 net 30.
What goes wrong
- Discounting the rate instead of showing the discount, which sets a new price you can never walk back.
- Offering a discount to close an overdue invoice, which teaches the client that being late is cheaper.
- Not checking what the discount costs. On a 25% margin, taking 10% off the price removes 40% of the margin.
Common questions
Should I offer an early payment discount?
Only if being paid twenty days sooner is worth the money to you. 2/10 net 30 costs 2% of the invoice for twenty days, which is expensive money unless cash is tight.
How do I show a discount on an invoice?
As a line the client can see, with the full value of the work above it. A hidden discount buys goodwill once and costs you the price forever.