What is a discount for early payment in procurement?

A discount for early payment in procurement is a financial incentive offered by suppliers to encourage buyers to pay invoices before the due date. This approach benefits both parties; the supplier improves cash flow by receiving payments sooner, while the buyer saves money by taking advantage of the reduced price. Such discounts are a common practice in purchasing agreements, often presented as a percentage off the total invoice amount if payment is made within a specified timeframe.

Timely payments are crucial in supply chain management as they foster strong supplier relationships and can lead to better terms in future contracts. This practice enhances overall procurement efficiency and can significantly impact a company's bottom line by reducing overall procurement costs.