Cash Discount on an Invoice: Wording, Deadline and VAT

A cash discount (Skonto) is voluntary. No law in Germany obliges you to grant a reduction for early payment. If you do offer one, two details decide whether you end up in an argument: when the deadline starts, and what counts as payment on time. Write both down explicitly, because without clear wording the question comes down to interpretation – and that will not necessarily go your way. If the client does take the discount, your consideration is reduced, and you correct the VAT only at that moment.

This article explains the general German rules and is not tax or legal advice. If you're unsure about your specific case, ask a German tax advisor (Steuerberater).

Contents

1. Do I have to offer a cash discount at all?
2. What a cash discount really costs you: the sum almost nobody does
3. Invoice date or date of receipt: when does the deadline start?
4. When is payment on time: transfer order or credit to the account?
5. The wording that settles both questions
6. Calculating the discount: a worked example
7. The client takes the discount: what happens to the VAT?
8. The client takes the discount despite paying late
9. Frequently asked questions

Do I have to offer a cash discount at all?

No. A cash discount is an offer, not an obligation. You're telling the client: pay early and you may transfer less. If they don't take the offer, they pay the full amount by the agreed due date.

The reverse is also true: a client may not simply deduct a discount just because they paid quickly. They may only do so if you offered it or it's in the contract. In some sectors – construction, wholesale, the trades – cash discounts are so common that clients deduct them anyway. Custom does not make that lawful.

The reason many people offer one regardless: a cash discount pulls payments forward. If money is tight and you're regularly waiting to be paid, you're buying liquidity. What that purchase costs, however, is something almost nobody works out – more on that in a moment.

What a cash discount really costs you: the sum almost nobody does

Two per cent feels small. On an annual basis it is a great deal, because you're paying those two per cent for a short stretch of time.

The rough formula:

Discount rate × 360 ÷ (payment term − discount period) = annual interest in per cent

For comparison: a bank overdraft facility usually costs a low to at most a modest double-digit percentage per year. A cash discount is therefore almost always the most expensive way to get hold of money.

Two conclusions. First: the shorter the gap between discount period and payment term, the more expensive it gets for you – "2 % within 8 days, net 14 days" is a bad deal. Second: when you receive an invoice offering a discount yourself, taking it is almost always worthwhile, if necessary using your overdraft.

What's customary? Rates of 2 to 3 per cent with a period of 7 to 14 days are widespread. That's an observation from practice, though, not a rule – nothing stops you offering 1 per cent. Before settling on a rate, put it into the formula above and see what it actually costs you.

The calculation is approximate: it ignores compounding and works with a 360-day year. For the decision, it's enough.

Invoice date or date of receipt: when does the deadline start?

This is the most frequently asked question on the topic – and the point on which most invoices are vague. "3 % discount within 10 days" doesn't say when those ten days begin.

If you've agreed nothing further, the prevailing view is that the period starts when the invoice reaches the client, not on the date you printed on it. The reasoning is persuasive: otherwise you could send the invoice a week late and effectively hollow out the discount period. The client is meant to have the full period to react.

That is an interpretation, though, not a rule you should rely on. The safe route is mundane and costs nothing: state the reference point. You're free to choose it yourself.

The last variant is the most practical: a specific date instead of a period. Then there's nothing to interpret, and the client doesn't have to calculate. For invoices sent by email, which normally arrive the same day, "from the invoice date" also causes little trouble.

When is payment on time: transfer order or credit to the account?

The second ambiguity that sparks disputes: the client instructs the transfer on the last day of the period, and the money reaches you two days later. Did they meet the deadline?

Here the legal position is less clear-cut than many guides suggest. Older case law focused on the debtor having done everything required in good time, that is, on the transfer order. In 2008 the European Court of Justice ruled for transactions between businesses that the decisive moment for timeliness is the credit to the creditor's account (judgment of 3 April 2008, C-306/06). That ruling concerned statutory late payment, not a contractual discount arrangement directly – for the latter, what you agreed applies first and foremost.

Because two standards sit side by side here, the same applies as for the start of the period: set it yourself, and you won't have to have the argument. "If payment is credited by …" is unambiguous and, from your point of view, the safer variant, because it refers to your account rather than to a step you cannot see.

The wording that settles both questions

This is what the block on the invoice looks like once both pitfalls are cleared:

Payment terms

Payable in full by 12 October 2026.
If payment is credited by 22 September 2026, we grant a 2 % discount
on the invoice amount.

Three things are contained in it: a specific due date, a specific discount date, and the reference to payment being credited. The first line is your ordinary payment term – what matters there, and when a client falls into default without a reminder, is covered in Payment terms on an invoice. If you prefer periods to calendar dates, write:

Payable within 30 days of the invoice date without deduction.
If payment is credited within 10 days of the invoice date,
2 % discount.

Important for VAT: you do not have to calculate the discount amount. For the mandatory detail under § 14 (4) sentence 1 no. 7 UStG, a reference to the arrangement is enough, i.e. "2 % discount if paid by …". Neither the discount in euros nor the tax attributable to it has to appear on the document. That's how the German VAT administrative guidance puts it, and it saves you a line of arithmetic.

What you should avoid: making the discount depend on a condition the client cannot control, such as an invoice check on your side. In pre-formulated contract clauses, that is open to challenge; the Düsseldorf Higher Regional Court held a clause invalid that tied the start of the period to a review by the client's architect (decision of 26 April 2022, 23 U 196/20).

Calculating the discount: a worked example

The discount is deducted from the gross amount, i.e. including VAT. An example with 2 per cent:

For your bookkeeping, the discount splits back into two parts: 40.00 euros less consideration and 7.60 euros less VAT. You'll need both in the next section.

If you use the small-business scheme under § 19 UStG, the split doesn't arise: there is no VAT, so you simply deduct the 2 per cent from the invoice amount. What the invoice looks like then is covered in Writing an invoice without VAT.

The client takes the discount: what happens to the VAT?

This is where many people create more work than necessary. The three key points:

You do not write a new invoice. The original invoice stays as it is. The discount was announced from the outset, so the document isn't wrong. You only need a correction or cancellation invoice if the invoice actually contains an error – see Correcting an invoice.

You correct the VAT only when the discount is taken. Nothing happens when the invoice is issued. Only once the reduced amount lands in your account has the taxable base changed (§ 17 UStG). In the example above, you report 7.60 euros less VAT.

The correction belongs in the period of payment, not that of the invoice. If you issue the invoice in September and the client pays in October with the discount, you correct it in the October VAT return. So you don't have to amend a return you've already filed.

Your client does the same thing in reverse on their side: they deduct correspondingly less input VAT. That's not your concern.

If you account for VAT on a cash basis (Ist-Versteuerung), it gets simpler still: there the tax arises only when the money comes in anyway, and then on the reduced amount.

The client takes the discount despite paying late

The most common annoyance. The client transfers three weeks later and still deducts their 2 per cent.

The legal position here is clear: the condition for the deduction was payment on time. If it wasn't on time, the client still owes the remaining amount. Your claim hasn't lapsed, it has simply been paid in part.

In practice, the decision hinges less on the law than on the effort involved. With 48 euros at stake and a client who orders 20,000 euros' worth every year, a friendly message beats a formal reminder:

We received your payment of 14 October, thank you. The discount deduction of 47.60 euros was, however, conditional on payment being credited by 22 September. We therefore ask you to transfer the outstanding balance of 47.60 euros.

If it happens repeatedly with the same client, react rather than accept it. Anyone who lets the deduction stand unchallenged for years weakens their position for the future. If the client doesn't pay the remainder, it's an ordinary outstanding claim: Writing a payment reminder.

One borderline case that's often overlooked: the client pays on time but only part of the invoice, and deducts the discount on that. A cash discount presupposes that the claim is settled in full. With a partial payment, the deduction is therefore generally not justified – unless you have expressly agreed that partial payments qualify.

Frequently asked questions

Is the discount deducted from the net or the gross amount?

From the gross amount, i.e. including VAT. The client transfers the invoice amount reduced by the discount rate. In your bookkeeping, you then split the deduction back into consideration and tax.

Do I have to state the discount in euros on the invoice?

No. The note "2 % discount if paid by …" satisfies the mandatory detail under § 14 (4) sentence 1 no. 7 UStG. You may calculate it, but you don't have to.

Can I offer a cash discount to private customers too?

Yes, nothing prohibits it. It's mainly customary between businesses. With private customers it rarely achieves much, because there payment is usually immediate or in advance anyway.

Can I withdraw the discount if a client is always late?

For future invoices, yes – you decide afresh on each document whether and how much discount to grant. An invoice already issued cannot be tightened retrospectively.

What's the difference between a cash discount and a rebate?

A rebate is a price reduction fixed from the start that reduces the invoice amount itself. A cash discount depends on the timing of payment: the invoice amount stays, and the client may only transfer less if they pay early. That's why the discount belongs in the payment terms and not in the line items.

Sources

• § 14 UStG
• § 17 UStG
• § 19 UStG
• § 270 BGB
• German VAT administrative guidance, section 14.5 (mandatory details on an invoice)
• ECJ, judgment of 3 April 2008, C-306/06 (01051 Telecom GmbH)
• Düsseldorf Higher Regional Court, decision of 26 April 2022, 23 U 196/20

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