How does that work? Do you send out the first invoice at 98% cost, wait 30 days, and send a second 2% invoice if the payment still isn't there?

You send an invoice at 100% and put at the bottom 'if paid before xx/xx/xxxx, amount is really $x.xx'.

Obviously this depends on local regulations. For example, in Belgium the rule is that the basis for VAT does not include the 'prompt payment discount'. E.g.: invoice is 100, 2% 10 net 30. How much is the VAT @ 21%? It's 0.21 * 98, so your invoice can say 'total payable before xx/xx/xxxx: 98 + 0.21 * 98, after that: 100 + 0.21 * 98.

I had a long, drawn-out argument with a supplier once whose very accounting manager didn't understand this concept. They would have me pay VAT on the 100, because otherwise, according to them, they'd be giving me 'a discount on the VAT' (that sentence doesn't make any sense whatsoever). So I called the tax office, PLUS an accountant, to confirm the right way for them to bill me, and they still didn't believe me (or rather - didn't understand me). So just to shut me up, they said 'we'll give you another 2% discount' facepalm

Tangential to the discussion above, I guess, just venting ;)

Good question! With a lot of our discounts we do a chargeback. That is, they pay 100%, then we send them the 2%. Not sure if the prompt pay discount works that way though.

an easy way to do it is to apply the credit to your next bill

if you offer a 2% discount on a 500$ service for paying in < 30 days, then you could give 10$ credit on the next bill

In my experience, this results in MegaCo taking the 2% discount, and still not paying within six months.