Question

Discounts for early payments are offered to encourage customers to _________.

1) buy more goods and services
2) buy on account and pay later instead of paying at the time of the purchase
3) settle their accounts on time
4) avoid using their credit cards for purchases

Answer 1

Discounts for early payments are primarily used to encourage timely account settlements, improving a company's cash flow and reducing credit risk.

Step-by-step explanation:

Discounts for early payments are offered to encourage customers to settle their accounts on time. When businesses offer discounts for early payments, they are not trying to promote the use of credit cards or delayed payment on account; rather, they want to enhance their cash flow and reduce credit risk by having customers pay their bills promptly. This practice contributes to the financial health of a company by ensuring that funds are received sooner rather than later, reducing the necessity for the company to seek financial capital through borrowing or other means.