Editing Discounts and allowances (section)

=== Prompt payment discount {{anchor|Prompt payment discount}} ===
''Cash discounts'' are reductions in price given to the [[debtor]] to motivate the debtor to make payment within specified time. These discounts are intended to speed payment and thereby provide [[cash flow]] to the firm. They are sometimes used as a [[promotion (marketing)|promotional]] device. A UK survey undertaken by the [[British Chambers of Commerce]] found that 13% of UK businesses offered prompt payment discounts (PPDs).<ref name=vat />

==== Examples ====
* 2/10 net 30 - this means the buyer must pay within 30 days of the invoice date, but will receive a 2% discount if they pay within 10 days of the invoice date.
* 3/7 EOM - this means the buyer will receive a cash discount of 3% if the bill is paid within 7 days after the end of the month indicated on the invoice date. If an invoice is received on or before the 25th day of the month, payment is due on the 7th day of the next calendar month. If a proper invoice is received after the 25th day of the month, payment is due on the 7th day of the second calendar month.
* 3/7 EOM net 30 - this means the buyer must pay within 30 days of the invoice date, but will receive a 3% discount if they pay within 7 days after the end of the month indicated on the invoice date. If an invoice is received on or before the 25th day of the month, payment is due on the 7th day of the next calendar month. If a proper invoice is received after the 25th day of the month, payment is due on the 7th day of the second calendar month.
* 2/15 net 40 ROG - this means the buyer must pay within 40 days of receipt of goods, but will receive a 2% discount if paid in 15 days of the invoice date. (ROG is short for "receipt of goods".)

====Taxation treatment====
Before 2014, suppliers in the United Kingdom were permitted to add [[Value-added tax in the United Kingdom|VAT]] to the discounted price, even if payment was not made within the discount period and therefore due in full. This provision generated a shortfall in [[tax revenue|taxation revenue]] and also meant that UK practices were not in line with the EU's [[European Union value added tax#Recast Sixth Directive|VAT Directive of 2006]], which specified that value added tax was to be levied on the actual price paid. Proposals were put forward in the [[2014 United Kingdom budget|budget of 2014]] to amend the UK's [[taxation law]] in this respect. In the telecommunications and broadcasting sectors (where there was no obligation to provide a VAT invoice), the law was amended from 1 May 2014, while in other sectors of the economy, the change was effective from 1 April 2015.<ref name=vat>HMRC, [https://assets.publishing.service.gov.uk/media/5a7c983040f0b6629523a87e/TIIN_9022_VAT_prompt_payment_discounts_.pdf VAT: prompt payment discounts], published on 19 March 2014, accessed on 27 December 2024</ref>