Final answer:
Early settlement or prompt payment is a business practice where invoices are paid before the due date, often with a discount incentive, which is popular because it improves cash flow and increases the adjusted payment received for goods or services.
Step-by-step explanation:
Early settlement or prompt payment refers to the practice of paying an invoice or bill before its due date. In many business transactions, there is an implicit or explicit agreement between the buyer and the seller that allows for a discount if the payment is made early. This discount is an incentive for the buyer to pay quickly, thus ensuring that the seller receives funds sooner than expected. This practice is popular with both economists and the general public because it can effectively increase the payment received for work or goods when adjusted for the time value of money. For instance, if a seller offers a 2% discount on an invoice due in 30 days for payment received within ten days, the buyer saves money, and the seller benefits from the improved cash flow. These early settlement discounts are a win-win for both parties, making it an attractive aspect of financial management and a smart business practice.