Q: Many schools and camps provide “early-bird” discounts if payment is made ahead of time. Is this practice allowed?
A: We learned that prepayment discounts for merchandise are generally not allowed, whereas prepayment discounts for labor are allowed if the work begins immediately.
If the school or camp is incorporated, it is also possible to rely on the leniency of Rav Moshe Feinstein zt”l that there is no prohibition in receiving ribbis from a corporation. In any case, it is worthwhile for the school or camp to draft a heter iska.
Payment for school or camp is primarily for the service of teaching or providing summer activities. Therefore, if payment is required only at the beginning of the school year or summer season, there is no problem of ribbis. Even if payment is required ahead of time, but the amount is only a small partial payment that can be attributed to the desire to secure the registration of the student or camper, there is also no concern of ribbis. However, if a substantial payment is required before the beginning of the year or season, as is common, there is a potential ribbis problem according to many poskim. (See Bris Yehuda 23:7; 26:3)
Some poskim argue, however, that the payment to the administration of the school or camp is not only for the actual teaching or camping, but for making any necessary arrangements, such as hiring staff, developing curriculum and schedule, etc. Therefore, since this work is underway long before the school year or summer season begins, the “early-bird” discount is permissible. (The Laws of Ribbis, ch. 7 ftnt. 30)
Authored by Rabbi Meir Orlian
These articles are for learning purposes only and cannot be used for final halachic decision. The Business Halacha email is a project of Business Halacha Institute (www.businesshalacha.com) and is under the auspices of Rav Chaim Kohn.
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It should be made clear that there is an important difference between an “early bird registration discount” and an “early payment discount”. All else being equal, it is ribbis to collect a different amount based on the timing of the payment. However, those who register early are not equal to those who register late, due to the advantage (to the business owners) of pre-planning.