If you want to encourage timely payments from your clients, offering a prompt pay discount could be one of the best ways to incentivize promptness. In this blog post, we’ll break down what a prompt pay discount is, discuss the various types available, provide examples, and outline the benefits they offer. Let’s get started.
Table of Contents:
What is a Prompt Pay Discount?
A prompt pay discount, also known as an early payment discount, is a financial incentive offered by a seller (freelancer or business) to a buyer (client or customer) for paying an invoice earlier than the agreed-upon terms. This discount typically involves a percentage reduction in the total invoice amount when the payment is made within a specified timeframe, i.e. within 10 or 15 days of invoice issuance.
Different Types of Prompt Pay Discounts:
Percentage Discount:
This type of prompt pay discount involves reducing the total invoice amount by a certain percentage if the client pays within the specified timeframe. For example, a freelancer might offer a 5% discount on the total invoice amount if the client pays within 10 days.
Example: Let’s say a graphic designer invoices a client $1000 for a project. They offer a 5% prompt pay discount, meaning the client can pay $950 if they settle the invoice within 10 days instead of the full $1000.
Fixed Amount Discount:
Instead of a percentage reduction, freelancers can offer a fixed dollar amount discount for early payment. For instance, they might provide a $50 discount on the invoice amount if the client pays within the specified timeframe.
Example: If a freelance writer invoices a client $500 for a project and offers a $50 prompt pay discount, the client can pay $450 if they settle the invoice within the agreed-upon timeframe.
Tiered Discount:
With a tiered discount structure, freelancers can offer varying discount rates based on the timing of payment. For instance, they might provide a higher discount percentage for payments made within the first week after invoicing, followed by a lower discount for payments made in the second week.
Example: Let’s say a web developer offers a 10% discount for payments made within 7 days, a 5% discount for payments made within 14 days, and no discount thereafter. This incentivizes clients to pay earlier to maximize savings.
Early Payment Rebate:
Instead of deducting the discount from the invoice amount upfront, freelancers can offer an early payment rebate to clients who pay promptly. In this case, clients pay the full invoice amount initially but receive a rebate or credit on their next invoice for complying with the prompt payment terms.
Example: Let’s say an illustrator invoices a client $800 for a project and offers a $50 rebate on the next invoice if the client pays within 15 days.
Prompt payment discount templates
Here are some prompt payment discount templates that you can copy and paste on your invoice
Percentage Discount Template:
- Pay within [X] days of invoice date to receive a [X]% discount on the total invoice amount.
- Discount applies only if payment is received within the specified timeframe.
Fixed Amount Discount Template:
- Receive a discount of [X amount] if payment is made within [X] days of invoice date.
- This discount is applicable only for payments made within the specified timeframe.
Tiered Discount Template:
- Pay within [X] days of invoice date:
- Receive a [X]% discount if paid within the first [X] days.
- Receive a [X]% discount if paid within [X] to [X] days.
- No discount applicable for payments made after [X] days.
Early Payment Rebate Template:
- Pay the full invoice amount within [X] days of invoice date.
- Receive a rebate of [X amount] on your next invoice for complying with the prompt payment terms.
How to use prompt payment discount terms when invoicing?
If you use CheckYa for invoicing, adding prompt pay discounts is easy. Here’s are some simple steps:
- Log in to CheckYa: Sign in to your CheckYa account and find the dashboard where you handle your invoices. If you’re new, sign up for CheckYa using this link.
- Create a New Invoice: Once logged in, click on “Invoice” in the menu, then select “Create New Invoice” to start invoicing your client.
- Enter Client Details: Fill in your client’s info like name and contact details needed for the invoice.
- Outline Services and Costs: Clearly list the services provided and their costs. This ensures your client knows what they’re paying for.
- Add Payment Terms with Discount: In the invoice template, find the ‘Terms’ or ‘Payment Terms’ section. Here, you’ll include your payment terms, including the prompt pay discount. Be clear about the discount amount or percentage for early payment.
- Preview and Send: Before finalizing, review the invoice for accuracy. Make sure all details, like client info, services, costs, and payment terms, are correct. Then, send it directly to your client via CheckYa
Conclusion:
In conclusion, now that you understand prompt payment discounts and have access to useful templates, it’s time to select the best option for you and your clients. By using these incentives, you can make invoicing easier, improve cash flow, and build stronger professional relationships.
