How-to · Customers and sales
How to record an early payment discount
When a customer takes an early payment discount, record the cash received, the discount as a sales discount, and clear the full invoice. When you take one on a vendor bill, the full bill is cleared, the cash paid is less, and the difference is a purchase discount.
How-to guides / Early payment discount
The accounting behind it
Terms such as 2% 10 Net 30 mean the full amount is due in 30 days, but the buyer may take 2% off if they pay within 10 days. The invoice was for the full price, so the full receivable has to be cleared even though less cash comes in.
On the selling side the discount is a reduction of income, often kept in its own account (Discounts Given) so you can see what early-payment terms cost you. On the buying side it is a purchase discount that lowers your costs.
If the customer takes the discount after the deadline, you can accept it or ask for the difference. Either way, record what actually happened.
| Account | Debit | Credit |
|---|---|---|
| Bank | Cash received | |
| Discounts Given | Discount | |
| Accounts Receivable | Invoice total |
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | Bill total | |
| Bank | Cash paid | |
| Purchase Discounts | Discount |
Worked example: 2% 10 Net 30 on a $5,000 invoice
You invoice $5,000.00 on terms of 2% 10 Net 30 on June 1. The customer pays on June 9, within the 10 days, and sends $4,900.00. You record $4,900.00 to the bank, $100.00 to Discounts Given, and clear the $5,000.00 invoice.
| Account | Debit | Credit |
|---|---|---|
| Checking | $4,900.00 | |
| Discounts Given | $100.00 | |
| Accounts Receivable | $5,000.00 |
Common mistakes
- Leaving $100 open on the invoice, which then sits in the aging report for months.
- Recording the discount as a bank fee or a general expense, which hides the true cost of the terms.
- Working out the discount on the tax as well as the price without checking the rule (see the Canada note).
- Taking a vendor discount after the discount date. The vendor may bill you the difference.
In the US and in Canada
United States
Whether sales tax is due on the full invoice or on the discounted amount is a state rule, so check your state's guidance before adjusting the tax.
Canada
For GST/HST, section 161 of the Excise Tax Act says that when an invoice offers a lower price for early payment, the tax is based on the amount shown on the invoice. So you charge GST/HST on the undiscounted price and make no tax adjustment when the customer takes the discount.
In AcboBooks
AcboBooks 0.2.1 suggests the discount from the terms when the payment date is inside the discount window.
- Set the terms. On the customer or vendor in Lists → Customers or Lists → Vendors, set Payment terms to 1% 10 Net 30 or 2% 10 Net 30 (or custom terms).
- Customer pays. In Customers → Receive Payment, choose the customer and date. The Discount column fills in from the terms when the invoice is paid in time; you can type over it.
- Pick the discount account. Choose the Discount account under the grid, then click Save Payment.
- You pay a vendor early. In Vendors → Pay Bills, tick the bill. The Discount column fills from the vendor's terms when the Payment date is in time; AcboBooks posts it to Purchase Discounts. Click Pay Selected Bills.
Menu names are from AcboBooks 0.2.1. Not using it yet? Try it free for 15 days, with the sample company to practise on.
Questions
Is an early payment discount an expense?
On sales, it is usually shown as a reduction of income (a contra-income account such as Discounts Given). On purchases, a purchase discount reduces cost of goods sold or the expense.
What does 2/10 net 30 mean?
Take 2% off if you pay within 10 days; otherwise the full amount is due in 30 days.
Do I charge GST/HST on the discounted amount?
In Canada, no adjustment: under section 161 of the Excise Tax Act the tax is based on the invoice amount before the early-payment discount.
Related how-to guides
- How to record a customer overpayment
- How to write a check for a vendor bill
- How to record a vendor credit
Terms used here
- How to collect overdue invoices
- Free invoice generator
- Accounts payable in AcboBooks
- GST/HST calculator
Sources
Updated October 25, 2026. General bookkeeping information, not tax, legal or accounting advice. Rules differ by state and province and change over time; check with the IRS, the CRA or your accountant for your own situation.
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