Net 30 Cost Calculator

How it is calculated

The tool prices the early-payment discount you give up when you pay on the last day. The cost for one period is period cost = d / (100 − d) × 100, where d is the discount in percent. The number of such periods in a year is 360 / (net days − discount days): the year is taken as 360 days, as in OpenStax Principles of Finance (section 19.2) and the early-payment discount tool on this site; a 365-day year gives a result about 1.4% higher (37.24% instead of 36.73% for 2/10 net 30). The annual cost is their product: annual cost = period cost × 360 / (net days − discount days). This is a simple annualisation without compounding, so the true compounded rate is somewhat higher. The breakeven borrowing rate shown is the same figure: if your loan costs less, taking the discount pays off. The discount must be between 0 and 100 (exclusive), and net days must exceed discount days.

Common mistakes

• Dividing by net days instead of by the gap between net days and discount days. Using 45 days instead of 35 would understate the cost; the credit you gain lasts only from day 10 to day 45.
• Calculating the period cost as d percent of the invoice. The tool divides by (100 − d), because the discount is taken off the price, so 1% off costs 1.01% of what you actually pay.
• Comparing the result with a monthly rate. It is an annual figure, so compare it with the yearly interest rate of your loan or credit line.
• Entering the discount as a decimal such as 0.02 for 2%. The field is a percentage, so type 2.
• Ignoring that the figure is not compounded. For 2/10 net 30 the tool gives 36.73%, while compounding the 2.04% period cost gives a higher effective rate.