What type of discount is given as an inducement for prompt payment of invoices?

The type of discount that is provided as an inducement for prompt payment of invoices is classified as a cash discount. This discount is specifically offered to encourage customers to pay their bills quickly, typically within a specified timeframe. By providing a percentage reduction on the total invoiced amount, businesses entice clients to expedite payments, which can help improve cash flow and reduce accounts receivable.

In contrast, seasonal discounts are offered at specific times of the year to stimulate sales for seasonal products. Trade discounts are reductions given to wholesalers or retailers from the manufacturer’s list price, serving as a way to incentivize them to carry and promote the product. Meanwhile, volume discounts are provided to customers who buy in larger quantities, rewarding bulk purchases rather than focusing on the timeliness of payment. Thus, the cash discount stands out as the clear motivator for prompt payments in transactional relationships.