A purchase discount is a deduction that a payer can take from an invoice amount if payment is made by a certain date. This discount is used when a seller needs to accelerate the inflow of cash. However, the effective interest rate associated with purchase discounts is usually high, so this can be an expensive form of funding.
As an example of a purchase discount, a seller offers its customers 2% off the invoiced price if payment is made within 10 days of the invoice date. Otherwise, payment is due in 30 days. This common payment option is contained within the invoicing code "2/10 net 30," which usually appears in the header line of an invoice.