Procurement Glossary
Discount: Definition, calculation, and strategic importance in Procurement
November 19, 2025
A cash discount is a price reduction granted by suppliers for early payment and Procurement an important tool for optimizing liquidity in Procurement . These payment terms enable companies to achieve significant cost savings by paying invoices early. Find out below what exactly a cash discount means, how it is calculated, and what strategic advantages Procurement for Procurement .
Key Facts
- A cash discount is a price reduction of typically 2-3% for payment within a certain period.
- The annual return on discounts can exceed 36% with 2/10 net 30 terms.
- Discounts improve liquidity planning and strengthen supplier relationships
- Automated cash discount systems reduce manual errors and optimize cash flow.
- Unused cash discount opportunities represent hidden costs.
Contents
What is a cash discount? Definition and application in the process
A discount refers to a price reduction that suppliers grant for early payment within a specified period. These payment terms are a key element of the procurement strategy.
Basics and functionality
A discount is usually expressed as a percentage of the invoice amount and is linked to a shortened payment period. The classic notation "2/10 net 30" means:
- 2% discount for payment within 10 days
- Full payment without deduction if paid by the 30th day
- Interest on arrears after the payment deadline has expired
Discount vs. other payment terms
Compared to prepayment or down payment, cash discounts offer more flexibility in liquidity management. Unlike factoring, the customer relationship remains unaffected.
The importance of discounts in Procurement
Cash discounts enable purchasing organizations to reduce their procurement costs while strengthening relationships with strategic suppliers. The systematic use of cash discount opportunities can contribute significantly to improving results.
Process steps and responsibilities
Successful use of cash discounts requires structured processes and clear responsibilities between Procurement, accounting, and treasury.
Contract negotiation and determination of terms and conditions
Procurement cash discount terms during the contract phase and documents them in the payment terms. Cash discount rates, payment deadlines, and calculation bases are specified in the process.
Invoice verification and approval process
Once the invoice has been received, it is checked to see whether it qualifies for a cash discount and the optimal payment date is calculated. A structured approval process ensures that cash discount deadlines can be met.
Payment execution and monitoring
Payments are made on time via payment runs, while continuous monitoring tracks cash discount utilization and identifies potential for optimization.
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Important KPIs and targets for Skonto
Systematic cash discount management requires monitoring specific key figures to measure success and ensure continuous optimization.
discount utilization rate
This key figure measures the proportion of cash discount opportunities used in relation to the total volume of invoices eligible for cash discounts. Target values are typically above 95% for strategic suppliers.
Discount yield and ROI
The annualized cash discount yield is calculated using the formula (cash discount % / (payment term - cash discount period)) × 365. For 2/10 net 30, this results in a yield of 36.5% p.a., which is compared with alternative financing costs.
Average payment period
The accounts payable cycle shows the efficiency of the payment process. Short cycles enable better use of cash discounts and improve supplier relationships in the long term.
Risks, dependencies and countermeasures
Despite the advantages, using cash discounts involves various risks that can be minimized by taking appropriate measures.
Liquidity risks and financing costs
Early payments can lead to liquidity bottlenecks if the cash discount yield is lower than the financing costs. A careful cost-benefit analysis and coordination with the credit limit are necessary.
Process risks and compliance
Missed discount deadlines due to manual errors or inadequate processes lead to direct additional costs. Automated workflows and regular checks significantly reduce these risks.
Dependencies on supplier conditions
Unilateral changes to terms and conditions or unclear contractual provisions can affect discount calculations. Clear contractual provisions and regular reviews of terms and conditions create planning security.
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Practical example
A mechanical engineering company optimizes its cash discount strategy by introducing an automated system. With an annual purchasing volume of €50 million and an average cash discount of 2% on 60% of invoices, the company achieves savings of €600,000 per year. The investment in automation pays for itself after just six months.
- Automatic discount calculation reduces manual errors by 95%
- Processing time reduced from 5 days to 1 day
- Improved supplier relationships through timely payments
Trends and developments related to Skonto
Digitalization and artificial intelligence are fundamentally changing discount management and enabling new optimization approaches.
Automation and AI-supported optimization
Modern ERP systems fully automate cash discount calculation and execution. AI algorithms analyze payment patterns and automatically optimize liquidity allocation for maximum cash discount utilization.
Dynamic discounting and flexible terms
Dynamic discounting enables variable discount rates depending on the time of payment. This flexibility optimizes both supplier cash flow and buyer savings.
Integration in Supply Chain Finance
Discounts are increasingly being integrated into comprehensive supply chain finance programs that also include reverse factoring and other financing instruments.
Conclusion
Cash discounts Procurement a powerful tool for optimizing Procurement , and their systematic use can lead to significant savings. Digitalization opens up new opportunities for automated processes and intelligent optimization. However, successful cash discount strategies require a holistic view of liquidity, processes, and supplier relationships. Companies that use cash discounts strategically gain sustainable competitive advantages.
FAQ
What does the notation "2/10 net 30" mean in relation to cash discounts?
This notation means a 2% discount for payment within 10 days, otherwise the full amount is due by the 30th day. After the 30th day, interest on arrears may be charged. These terms are widely used in the B2B sector.
How do you calculate the annual return on cash discounts?
The formula is: (discount % ÷ (payment term - discount period)) × 365 days. For 2/10 net 30, this results in: (2% ÷ 20 days) × 365 = 36.5% p.a. This high return makes discounts an attractive financing alternative.
When should you forego a discount?
Waiving the discount is advisable if your own financing costs are lower than the discount yield or if there is a risk of liquidity bottlenecks. Waiving the discount may also be appropriate in the case of suppliers with poor credit ratings or unclear contract terms.
What role does cash discount play in supplier evaluation?
Discount terms are an important factor in the total cost of ownership and influence supplier rankings. Generous discount terms can compensate for price differences and promote long-term partnerships.
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