Legal Definitions - cash discount

A cash discount is a reduction in the price of goods or services offered by a seller to a buyer as an incentive for prompt payment, typically for payment made immediately or within a specified short period, often using cash, a check, or an electronic transfer, rather than extending credit or delaying payment.

Here are some examples illustrating how cash discounts work:

• Imagine a furniture manufacturer sells a large order of chairs to a retail store. The invoice states, "Terms: 2/10, net 30." This means the retail store can take a 2% discount on the total invoice amount if they pay within 10 days. If they don't pay within 10 days, the full amount is due within 30 days. The 2% reduction offered for paying early is a cash discount, encouraging the retailer to settle their debt quickly.

• Consider a small, independent coffee shop that displays a sign at its counter: "Receive 50 cents off any drink when paying with cash." If a customer orders a $4.00 latte and pays with a credit card, they pay the full price. However, if they pay with physical cash, the price drops to $3.50. The 50-cent reduction is a cash discount, which helps the coffee shop avoid credit card processing fees and encourages immediate payment.

• A web design agency offers a client a 10% discount on the total project fee if the client agrees to pay the entire amount upfront before any work begins, rather than paying in installments or upon project completion. This 10% price reduction is a cash discount, as it incentivizes the client to provide immediate, full payment, which improves the agency's cash flow and reduces administrative effort.