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Is your business missing out on early payment discounts?

Many Melio users are now more easily achieving a 2% early payment discount from their vendors, without paying early. How? …by paying their bills with a credit card and scheduling the payment to go out in advance of the due date. If your goal is to reduce cost of goods sold, and keep your cash flow stable – you can achieve your goal using Melio.

What’s an “early payment discount?”

We get this question fairly often. Generally, an early payment discount is offered by suppliers to motivate their customers to pay sooner in exchange for a discount. For example, a supplier may extend a term such as 1/10, net 30 to incent their customers to pay early.  If the supplier’s customer pays their invoice within 10 days instead of paying in 30 days, the customer can deduct 1% of the amount owed on the invoice. Put another way, the customer saves 1% of the amount owed by paying 20 days early. We’ve often seen early payment discounts with terms such as 2/10, net 30 which can really help make paying early a no-brainer if you have adequate cash or can pay with a credit card–even when supplier will only accept a check.

We have a customer who owns a retail store specializing in unique hardware for residential doors. With Melio, he was able to schedule a payment to be received by his vendor in time to take advantage of the early payment discount.  His invoice due was $5,000 with 2/10, net 30.

He paid $4,900 (Saved $100) for paying the invoice in full within 10 days. Essentially, his supplier paid 2% of the invoice value for accelerating payment by 20 days. A 2% return over 20 days is very impressive (it’s an annualized percentage rate (APR) of more than 36%). A 1/10 net 30 discount works out to an 18% return when annualized…not too shabby.

A win-win for small businesses and their suppliers

Typically an early payment discount is a win-win for a small business and its supplier. For suppliers, it’s a win because cash flow will increase when they’re paid faster. For the small business, the costs of goods are reduced which can increase the margin of products or services. This savings can also contribute to a modest increase in the small business’s cash flow.

In addition to the savings and increased cash flow, an intangible but very important benefit should not be overlooked. The small business/supplier relationship can be strengthened because suppliers generally favor customers who pay on-time, and often favor those who pay early even more! This positive impact on the small business/seller relationship can have invaluable results like improved service levels, delivery times, or help when an emergency occurs.

So, what’s the problem?

For small businesses with poor cash flow, paying an invoice early may not make sense. Now with Melio, even companies with tight cash flow can take advantage of these discounts because they can pay with credit card even when the supplier only accepts checks.

Early payment discounts like 2/10 net 30 or 1/10 net 30 can be difficult to capture when the invoice-approval process is lengthy. Research shows the average invoice processing cycle takes 12.4 days from invoice receipt until payment is scheduled, which misses the allotted time frame to capture early payment discounts. But, we’ve found many of the small businesses we work with are taking advantage of these discounts since they have a simple invoice approval process and can use Melio to schedule a payment to be received by check or electronic deposit net 10.

Many suppliers do not offer early payment discounts. Buyers may request an early payment discount from their supplier. Even though it’s more often that not an advantage to the supplier to offer this type of discount, the supplier may not be setup of administer an early payment discount. We recommend asking your supplier for 2/10 net 30 if an early payment discount is not offered upfront in the payment terms.


Early payment discounts are valuable discount small businesses can use to generate a higher rate of return overall than simply allowing cash to sit. While there are some challenges to capturing early payments, such as scheduling payments to arrive on time and having the cash on hand, early payment discounts can offer an impressive annualized return and can improve the small business/supplier relationship. In some cases, the mutually beneficial payment terms need to be requested. Capturing early payment discounts traditionally hasn’t been easy, but, with Melio, it’s doable and it may be well worthwhile for your business.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.