Which of the following best describes prepayment discounts?

Prepayment discounts are incentives offered to customers who pay their invoices ahead of the scheduled due date. This practice not only encourages prompt payment but also aids businesses in managing cash flow more effectively. By offering a discount, businesses can reward clients for their early settlement of invoices, thus fostering a positive relationship and potentially increasing customer loyalty. This approach benefits both parties: customers save money, and businesses improve their liquidity.

The other options do not accurately define prepayment discounts. Late payment fees pertain to charges incurred as a penalty for overdue accounts, while charges for service modifications are related to changes in services rather than payment timing. Incentives for maintaining long-term accounts might encourage customer retention, but they are not specifically linked to the timing of payments in the same way that prepayment discounts are. Therefore, the choice that best encapsulates the concept of prepayment discounts is the one that highlights rewards for early invoice settlement.