How to Calculate Settlement Discount Granted refers to methods used to determine the reduction in the amount of money owed in exchange for early payment of an invoice or other obligation. For instance, a company may offer customers a 2% discount for payments made within 10 days of the invoice date.
Calculating settlement discounts is important because it allows businesses to optimize their cash flow and reduce bad debt. Additionally, offering early payment discounts can incentivize customers to pay on time and strengthen business relationships. Historically, settlement discounts have been used for centuries, with the first recorded instances dating back to ancient civilizations.