Early payment discount calculator
Enter the invoice amount and the terms – discount %, discount days and net days. The early payment discount calculator shows the amount to pay, the discount and the annualized cost of paying late, so you can see whether borrowing to take the discount pays off.
Example: Invoice amount 10,000 · Discount 2 % · Discount period 10 days · Net period (full payment due) 30 days · Your borrowing rate (optional) 0 % per year → Amount to pay with discount: 9,800.00. Source: OpenStax Principles of Finance, 19.2 What Is Trade Credit? (2/10 net 30 = 36.73 %). Updated: .
How it is calculated
What does 2/10 net 30 mean?
The buyer may take a 2% discount if paying within 10 days; otherwise the full amount is due in 30 days. On a 10,000 invoice, paying by day 10 costs 9,800 – a 200 discount.
The cost of skipping the discount
Skipping the discount is like borrowing 9,800 for 20 extra days at a price of 200. OpenStax Principles of Finance gives the annualized cost as discount ÷ (100 − discount) × 360 ÷ (net days − discount days):
| Terms | Annualized cost | Effective (compounded) |
|---|---|---|
| 1/10 net 30 | 18.18% | 20.13% |
| 2/10 net 30 | 36.73% | 44.59% |
| 2/10 net 45 | 20.99% | 23.45% |
| 3/15 net 45 | 37.11% | 44.86% |
The effective rate compounds the cost over a 365-day year: (1 + d ÷ (100 − d))365 ÷ days − 1. Either way, few business credit lines cost that much – which is why taking the discount usually makes sense, even with borrowed money.
For sellers
Offering 2/10 net 30 gets cash in faster but costs 2% of revenue on every early payer. Compare it with your own financing cost and the risk of late payment before offering it. In Excel: discount =A1*2%, cost =2%/(1-2%)*360/(30-10).
Frequently asked questions
What does 2/10 net 30 mean?
A 2% discount if the invoice is paid within 10 days; otherwise the full amount is due within 30 days.
How do you calculate an early payment discount?
Multiply the invoice by the discount rate. For 2% on 10,000 the discount is 200 and you pay 9,800.
What is the annualized interest rate of 2/10 net 30?
About 36.7%: 2 ÷ 98 × 360 ÷ 20. Compounded over a year it is about 44.6%.
Should I take the early payment discount?
Usually yes. If your borrowing rate is below the annualized cost of skipping the discount, paying early saves money even with borrowed funds.
Is the discount calculated before or after sales tax?
Terms apply to the invoice amount stated by the seller; check the invoice terms to see whether taxes and freight are included in the discount base.
Sources and legal basis
As of:
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