The term discount is a widely used financial term that can describe a number of different situations, most notably granting money or other property when making a payment at a reduced rate. In a legal context, the term discount often refers to receiving an amount less than the full amount of a debt that is owed. Most commonly, a discount can refer to money or some other contractual obligation being applied in lieu of the full amount of a debt or invoice charged.
For example, Discounted Cash Flow (DCF) is a popular financial modeling approach which allows investors to discount a future sum of money by taking into account associated future risks or by investing earlier than normal (e.g., via an installment-based agreement). Discounts are also used within the context of taxation, such as when a company reclines a portion of their taxable income upon payment. Other uses include discounts being offered in lieu of selling goods at lower prices; this is called a volume discount. Some companies also offer what’s called a “quantity discount”, whereby buyers are granted a reduced rate for larger quantities.
In sum, before agreeing to a discount of any kind, it’s critical to understand the precise amount of the contemplated discount and its concomitant terms. It is perhaps even more critical to ensure that all applicable laws and/or regulations are satisfactorily met prior to agreeing to a discount. In light of these considerations, it is important to understand the legal implications of a discount before agreeing to its terms.