Pricing and terms for cash: deposits, milestone billing, subscriptions, early-payment discounts and minimum orders

What you will learn

• How deposits and milestone invoices cut the peak funding need of a project.
• When VAT on a deposit becomes due and how to invoice it correctly in Germany.
• How to judge an early-payment discount from the seller's side using its annualised cost.
• How annual prepayment, minimum orders and clear terms support cash without hurting sales.

Explanation

The cheapest way to shorten the cash cycle of lesson 9 is to write it into the offer. Pricing methods themselves were covered in "Business Foundations" and "Growing an Online Business"; this lesson is only about the cash timing of terms.

A deposit (Anzahlung) is a payment before work starts. It filters out customers who cannot pay and funds the first purchases; 30 to 50 percent is common for custom work, and for consumers it must be agreed clearly before the contract. Milestone billing (Abschlagsrechnungen) splits a longer project into invoices triggered by defined, checkable events: "design approved", "delivery to site", "acceptance". In construction and craft work the law on contracts for work (§ 632a BGB) gives the contractor a right to interim invoices for completed parts.

VAT follows the money for deposits: when a prepayment is received before the service is performed, the VAT on it becomes due with the Voranmeldung for the period in which the money arrives (§ 13 (1) Nr. 1 a UStG, as of 2026). A deposit invoice must show VAT separately, and the final invoice must list the deposits already received with their VAT and charge only the remainder; otherwise VAT can be owed twice. Have a Steuerberater check your invoice templates once.

An early-payment discount (Skonto) from the seller's side is the mirror image of lesson 6: you give up part of the price to receive cash earlier. Its cost to you is the same formula your customer uses to value it: discount ÷ (100 − discount) × 365 ÷ days gained. 2 percent for payment within 10 instead of 30 days costs 2 ÷ 98 × 365 ÷ 20 ≈ 37 percent per year. That is worth it only if the alternative is dearer credit or if the discount also cuts bad-debt risk. For many small firms a 14-day term with strict dunning is cheaper than Skonto.

Annual prepayment for subscriptions or maintenance contracts (for example "12 months for the price of 10") turns small receipts into one upfront payment; the 16.7 percent discount is expensive, but the customer also commits for a year, which reduces churn. Minimum orders and minimum contract terms prevent orders whose handling cost exceeds their contribution margin. Every invoice should state the due date, bank details and the consequences of late payment.

Worked example

Hypothetical example: a workshop takes a €60,000 custom project (net of VAT) lasting three months with costs of €15,000 per month paid at each month end. Option A: one invoice at completion, paid 30 days later. Option B: 30 percent deposit on signing, 40 percent at an agreed milestone at the end of month 2 (paid within 30 days), 30 percent at acceptance in month 3 (paid within 30 days). Overdraft interest is a hypothetical 10 percent per year; VAT is left out for clarity.

Both options end with the same €15,000 margin, but the peak funding need is €45,000 in A and €12,000 in B. Approximate overdraft interest: A ≈ (15,000 + 30,000 + 45,000) × 0.10 ÷ 12 = €750; B ≈ (12,000 + 3,000) × 0.10 ÷ 12 = €125. More important than the €625 saved: under A a customer default at month 3 would cost the workshop €45,000 of cash; under B the exposure never exceeds €12,000.

Common mistake

Practice activity

On paper: a software consultancy invoices €8,000 per month on 30-day terms, but customers pay on average on day 45. The owner considers offering 2 percent Skonto for payment within 7 days, expecting customers to take it. (a) Calculate the annualised cost of the discount, measured against the actual 45-day behaviour. (b) Calculate the annual cost in euros if all €96,000 of yearly revenue takes the discount. (c) Compare with the alternative of a 14-day term plus a dunning calendar that brings average payment to day 25, financing the remaining gap with an overdraft at 10 percent. Which is cheaper?

Key takeaways

• Deposits and milestone invoices reduce peak funding need and default exposure without changing the price.
• VAT on a deposit is due when the money arrives; final invoices must net off deposits correctly.
• Seller-side Skonto costs discount ÷ (100 − discount) × 365 ÷ days gained; compare it with your real credit cost.
• Prefer short, clear terms and a dunning calendar; use discounts only where they also cut risk or churn.

Next step

Even good terms cannot save a business that ignores its warning signs; lesson 11 explains liquidity tests, the legal duty to file for insolvency and the restructuring options in Germany.