What is the purpose of offering a discount for early payment?

• A. To reward late payment.
• B. To promote timely payment and reduce collection costs.
• C. To increase interest.
• D. To fund budget deficits.

Answer: (B)

Prompt payment discounts are used to encourage customers to pay promptly, improving cash flow and reducing collection costs. When payments come in earlier, the government or organization has cash available sooner, spends less on chasing late payments, and minimizes the administrative and borrowing costs tied to delayed receipts. This incentive isn’t about rewarding late payment, increasing interest, or funding budget deficits; it’s a practical tool to speed up receipts and trim the costs of managing accounts receivable.