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Early Payment Discount Calculator

Enter your supplier's discount terms to see the true annual cost.

How it is calculated

Terms such as 2/10 net 30 are entered as three numbers: discount percent, discount days (10) and net days (30). The extra credit period is net − discount days. Paying late instead of early costs d ÷ (100 − d) of the amount you actually pay, shown as the cost for the period. That is scaled to a year with simple annualisation: APR = d ÷ (100 − d) × 360 ÷ (net − discount days) × 100. It is not compounded, so a compounded effective rate would be higher. The discount must be above 0 and below 100, discount days cannot be negative, and net days must be greater than discount days; otherwise no result is shown. A 360-day year is used, the convention of OpenStax Principles of Finance (section 19.2); on a 365-day year the result is about 1.4% higher (37.24% instead of 36.73% for 2/10 net 30).

Worked example

Terms of 2/10 net 30. Extra days: 30 − 10 = 20 days. Cost over that period: 2 ÷ 98 = 2.04%. Annualised on a 360-day year: 2 ÷ 98 × 360 ÷ 20 = 2.04% × 18 = 36.73%. Skipping the 2% discount to keep your cash for 20 more days is like borrowing at about 37% a year, so the discount is worth taking unless the cash earns more elsewhere or a cheaper loan is available.

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Common mistakes

  • Dividing the discount by the invoice (2 ÷ 100) rather than by the amount actually paid (2 ÷ 98); this understates the cost.
  • Using the net term (30 days) instead of the extra days (20) when annualising, which gives only about 24.5% here.
  • Entering the discount as a fraction (0.02) instead of percent (2); values below 1 are treated as less than 1%.
  • Comparing the result with a loan rate that is compounded; the figure here is a simple annual rate, so allow for that in a close call.
  • Ignoring that paying late past day 30 loses the credit period entirely; the calculation assumes you pay exactly on the net day.

Sources

About this calculator

Trade-credit terms like “2/10 net 30” mean a buyer gets a 2% discount if they pay within 10 days, but otherwise owes the full amount by day 30 — offering an early-payment discount is how suppliers speed up cash collection. That discount is worth far more than its face percentage suggests: giving up a 2% saving to hold onto cash for only 20 extra days works out to a very high effective annual interest rate once annualized.

This calculator converts any supplier's discount terms into that effective annual percentage rate, using the standard formula that annualizes the discount over the number of days gained by paying early, on a 360-day year as in OpenStax Principles of Finance (2/10 net 30 = 36.73%). It's used by accounts-payable teams and small-business owners to decide, in hard numbers, whether taking the discount (often equivalent to a 30–40%+ annual return) beats whatever else the cash could earn, or whether it's cheaper to simply pay on time or draw on a line of credit to fund early payment.

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  • Editorial team

    The net period matters as much as the discount itself. Keep 2% and 10 days but stretch the net term from 30 to 60 days, and the annualised figure falls from 36.73% to 14.69%, because the discount now buys 50 extra days of credit instead of 20. That is why the same percentage can be a clear yes in one invoice and a close call in another. Which terms do your suppliers usually offer, and does a shorter net term change your decision?

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