I have a small swimming pool construction business. Since almost no one thinks about swimming in the winter, and I could really use the extra cash, I was planning on offering an early-bird special: Customers can get a discount if they pay in advance for a swimming pool that I’ll install later. But a friend of mine claimed it may be a problem according to Jewish law. Why would early-bird specials be a problem, and are there any solutions?

Reply

The Torah forbids ribbit, usually translated as “usury”—lending money with interest. Essentially, one is charging for the right to hold (and use) the borrowed money. Rabbinically, this prohibition against usury is expanded to include transactions where extra money and goods are given in exchange for a benefit similar to ribbit.

The Talmud states that, as a general rule, “any reward for waiting for one’s money” is considered ribbit and is prohibited.1 For example, one’s business is suffering from cash flow problems, so he decides to offer an early-bird discount: Instead of paying $120 when the item becomes available, you can pay a discounted price of $100 in advance and receive the item later. This is prohibited, since the buyer is essentially being rewarded for “loaning” his money to the seller for the time between the payment and when the goods become available.

There are, however, some exceptions to the above rule.

In-Stock Items

The Talmud brings the case of one who purchases bars of wax from a wax seller. The current rate is one dinar for four bars of wax, but the seller offers a deal: If one pays the dinar in advance, he’ll receive five bars of wax at a future time.

The rule is that if the seller has wax in stock at the time of the transaction, it is permitted to sell at a discounted rate. In halachic terms, this is called yesh lo (“he has”). Since the transaction can technically be finalized right now, it is considered as if the buyer takes immediate ownership of the item. But if the seller does not have wax with him, it is forbidden, as the extra bar is interest.2

However, there are two important caveats:

● The seller has to actually have the item. Waiting for an order to come from a wholesaler or manufacturer is not considered “having the item.”3

● It cannot be stated explicitly that the advance payment is a discount for early payment. Rather, the seller can say, for example, that the price until January 1st is $10, and after January 1st it’ll be $12.4

Market Rate

If there is no current market rate for the item (for example, a customized item), then it would be permitted to pay now to lock in a rate lower than the anticipated future rate. However, here too, one cannot state explicitly that the advance payment is discounted for early payment.5 (Some, however, disagree with this leniency.6)

Accepting Liability

If the buyer is willing to accept full financial risk and liability for the item from the time of the advance payment, an early discount may be offered. Thus, one can, for example, agree to pay a farmer a discounted price for all the crops that his field will yield in the coming year. Since there may very well be a lower yield than anticipated, it is not apparent that this is an actual discount.7

Hiring Workers

It is forbidden to hire a worker and pay him a discounted rate now for a job that will only be done in the future. Thus, in the case of your swimming pool business, the early-bird special could be problematic.8

Rental Property

One is allowed to give an early-bird discount when leasing a piece of land or a real estate property—and he can even specify that it is a discount—if, when the renter gives the money, he makes a kinyan (“acquisition”); in other words, he seals the deal to the point that both sides can no longer back out of it.9

Tuition and Camp

How does this apply to camps, schools and other programs that offer early-bird specials? Here, too, there is the potential for transgressing the prohibition of ribbit (at least rabbinically). Indeed, if the purpose of this early-bird special is merely for cash flow, it raises serious halachic questions.

Some, however, point out that that the early payment is not only for the actual program, but for all the work that will be going into it ahead of time, such as hiring staff, developing a schedule, ordering supplies and so on. Thus, the early-bird special is not considered “a reward for waiting for one’s money.”10

Alternatively, some say it’s permitted to offer a discount to one who pays a small deposit in advance, as long as it’s clear that the purpose of the deposit is not advance payment, but to be assured that the buyer will indeed follow through.11

As you can see, the laws of ribbit are at times complex. Therefore, consult with a competent rabbi before making any transactions that you think may be problematic.

Our sages remark that after discussing the prohibition of ribbit, the Torah stresses the fact that G‑d took us out of Egypt.12 This teaches us that just as G‑d discerned between a Jewish and Egyptian firstborn during the Exodus, so too G‑d discerns between one who is careful with the prohibition of ribbit and one who is not.13So in the merit of this mitzvah, may we experience the conclusion of this final exile with the coming of the Moshiach!