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Early payoff discount
Also called prepayment discount, early payoff benefit, discount tier.
A written provision reducing the total owed on an advance if it is retired before a stated point, normally on a tiered schedule that shrinks as collections progress.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Where it exists, the clause sets out tiers: retire within the first stated number of days and the total drops to one figure, within a later window and it drops to a smaller one, after that no reduction. Tiers are front-loaded because the funder's economics are front-loaded.
Some funders offer a discount only on a renewal, meaning the reduction is available if you take more money from the same funder, which is a pricing tool rather than a concession. Others handle it case by case with no contractual right at all, deciding at the moment you ask for a payoff figure.
The only version that binds anyone is the one in the executed agreement. A term sheet, an email from a broker, and a sentence on a phone call are not terms of the contract, and the agreement almost certainly contains an integration clause saying exactly that.
Where this one catches people
The tiers expire long before most businesses have the cash to use them. A discount available in the first month is theoretically valuable and practically unreachable for a business that borrowed short-term money because it did not have any. Treat the discount as a bonus if it lands, never as part of the reason the deal makes sense.
Worked through
An advance with $70,000 to remit and a written tier schedule: settle within 30 days of funding for $61,500, within 60 days for $65,500, after that the full $70,000. Clearing it on day 25 saves $8,500. Clearing it on day 61 saves nothing, and the business that waited three weeks for a customer to pay lands in that second case routinely.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Early payoff discount — common questions
What does early payoff discount mean?
A written provision reducing the total owed on an advance if it is retired before a stated point, normally on a tiered schedule that shrinks as collections progress.
Where does early payoff discount catch people out?
The tiers expire long before most businesses have the cash to use them. A discount available in the first month is theoretically valuable and practically unreachable for a business that borrowed short-term money because it did not have any. Treat the discount as a bonus if it lands, never as part of the reason the deal makes sense.
Is early payoff discount the same as an interest rate?
Early payoff discount is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does early payoff discount apply to?
Merchant Cash Advance, Working Capital, Revenue-Based Financing.
Is there a worked example of early payoff discount?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside early payoff discount?
Double dipping, Factor rate, Integration clause, Payoff letter, Renewal.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.