Early settlement discount
Q: I just want some clarity on this subject:
1. We have an agreement with most of our suppliers that all accounts are to be paid within 30 days from date of statement. We receive a settlement discount of 2.5% only if we pay our account on the specified time, that is 30 days from statement. Is this permissible?
2. On some instances we sometime pay a few accounts later than 30 days from statement (between 3 and 5 days later) and we are still allowed the 2.5% settlement discount from our supplier (not from all suppliers, from some of them). Is this permissible?
3. If we sometimes have any extra cash flow, than is it permissible to call our suppliers and negotiate an extra settlement discount. For early payment of our account (that is paying our account the same month that we purchased the goods), not 30 days from statement, but on the day we receive the statement then we are offered an extra 1.5% extra settlement discount. So instead of the 2.5% only we receive an extra 1.5% settlement discount for early settlement. Is this permissible?
1. Since this discount is conditional, it is not permissible for one to accept the discount. However if one has to make an agreement with his supplier that he is purchasing the goods for the discounted price as he will definitely pay within the time limit, then in this case it will be permissible for him as the both parties agree that the discounted price is the actual price. However if he defaults and pays after one month, then the extra amount he is asked to pay over the discounted price will be interest.
2. As above
3. Since one is asking for this discount on account of him paying earlier than the due date, it will not be permissible and it will enter the ambit of ribaa.
And Allah Ta’ala (الله تعالى) knows best.
Mufti Zakaria Makada
Checked & Approved:
Mufti Ebrahim Salejee (Isipingo Beach)