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Is this early-payment discount worth taking?

Turn terms like 2/10 net 30 into an annual rate, compare it with what your cash costs, and see the dollar result on a real invoice.

Terms and invoice

The starting values are an example. Calculations run in your browser and nothing you enter is sent anywhere.

%

The “2” in 2/10 net 30.

days

Pay within this many days to earn the discount.

days

When the full amount is due.

USD

One invoice, or a month of spend with this supplier.

% per year

Your credit line rate, or what the cash earns if left in the bank.

Results update as you type.

Skipping this discount costs you

37.2% a year

Paying 20 days early earns the discount. Compounded over a year, that is 44.6%.

Take it: the discount earns more than your cash costs.

Discount earned
$500.00
Amount paid early
$24,500.00
Cost of paying 20 days early
$107.40
Net gain from taking it
$392.60

How the numbers work

Annual rate (simple)
Discount ÷ (100% − discount) × 365 ÷ (net days − discount days). For 2/10 net 30: 2 ÷ 98 × 365 ÷ 20 = 37.2%.
Annual rate (compounded)
(1 + discount ÷ (100% − discount)) ^ (365 ÷ days early) − 1. Shown for reference; the decision uses the simple rate.
Cost of paying early
Amount paid early × your annual cost of cash × days early ÷ 365.
Decision
Take the discount when the simple annual rate is higher than your cost of cash.

This ignores taxes, card rebates, and the cost of processing a payment off-cycle. If you can only pay early by drawing on a credit line, use that line's rate as your cost of cash.

Why discounts get missedThe approval, receipt, and payment-run problems behind lost discounts, by ERP. Plan the payment runDecide what to pay this week without surprising suppliers or your cash forecast. AP ROI calculatorEstimate payback on AP automation with your own costs.

Common questions

What does 2/10 net 30 mean?
The invoice is due in 30 days, but you can take 2% off if you pay within 10 days. Paying early means giving up 20 days of cash in exchange for the 2%.
Why is the annual rate so high?
You earn 2% for moving the payment just 20 days earlier. There are about 18 twenty-day periods in a year, so the trade is worth roughly 37% a year on a simple basis, more if compounded. That is why skipping a discount is usually an expensive way to borrow.
Should we take every discount?
Only when the annual rate beats your cost of cash and the bill is ready to pay: received, matched, and approved inside the discount window. A discount taken on goods that later fail inspection, or that drains cash you need for payroll, is not a saving.