Cash Discount & Discount Calculator

Key facts at a glance:

• A cash discount is a price reduction on an invoice amount for payment within a specified period.

• Two types are distinguished: customer discount and supplier discount.

• In Germany, a discount rate of 2% to 5% and a discount period of 7 to 14 days is common.

• Formula: Invoice amount (€) × Discount rate (%) = Discount amount (€)

What Does Cash Discount Mean?

The term "cash discount" refers to a price reduction on an invoice amount for payment within a specified period.

For example, when a company or supplier grants its customer a cash discount, it allows them to deduct a certain percentage from the invoice amount. However, this only applies if the customer pays the invoice within a specified period. In Germany, a discount rate of 2% to 5% and a discount period of 7 to 14 days is common.

A cash discount also appears similar to a rebate for many people. Nevertheless, there is a difference between the two price reductions. When customers purchase services or products in larger quantities, companies grant a rebate. A cash discount, however, is a time-based reduction designed to encourage customers to pay quickly. This potential price reduction is intended to motivate customers to settle outstanding invoices promptly.

What Types of Cash Discounts Are There?

Fundamentally, two types are distinguished: customer discount and supplier discount.

• Customer discount: When a company grants its customers a cash discount, this is referred to as a customer discount. This reduces the company's sales revenue. At the same time, however, the money is available sooner for further use. The customer discount also creates an incentive for prompt payment and reduces the frequency of reminders and payment defaults.

• Supplier discount: In a supplier discount, suppliers also grant the company discounts, so that the approved rate can reduce the company's procurement costs. By paying on time within the discount period, companies save costs, improve their liquidity, and have more free funds available for investments.

How Is the Cash Discount Calculated?

The cash discount can be calculated using a simple formula:
Invoice amount (€) × Discount rate (%) = Discount amount (€)

Or simply use our convenient discount calculator. Just enter the invoice amount, payment term, discount rate, discount period, and interest days per year, and you will immediately see the potential savings.