Early Payment Discount Calculator

Enter the invoice amount and the terms, for example "2/10 net 30" means a 2% discount if paid within 10 days, otherwise the full amount in 30 days. You get the saving, the amount to pay early, and the annualised cost of not taking the discount. Nothing is sent anywhere.

What "2/10 net 30" means

Trade credit terms are written as discount / discount days, then "net" and the final due date. "2/10 net 30" offers 2% off if the invoice is paid within 10 days; otherwise the full amount is due in 30 days. "1/15 net 45" offers 1% off within 15 days, full amount at 45. The discount looks tiny, which is exactly why so many businesses ignore it. Annualised, it is one of the most expensive forms of financing you will ever pass up.

Why a 2% discount is really a 37% annualised rate

By paying on day 10 instead of day 30, you give up the use of the money for 20 days and receive 2% in return. Twenty days fits into a year about 18 times, so the return annualises to roughly 37% per year (with compounding it would be higher still). The precise formula this calculator uses is:

Annual rate = (discount ÷ (100 − discount)) × (365 ÷ (net days − discount days)) × 100

For 2/10 net 30 that is (2 ÷ 98) × (365 ÷ 20) = 37.2%. Compare that with the cost of an overdraft, a business credit card, or a line of credit. If your own cost of funds is lower than the annualised discount rate, paying early is usually the cheaper option; compare the two figures for your own situation.

For sellers: should you offer a discount?

Offering an early payment discount is a way to buy faster cash flow. Sellers with thin margins should be careful: a 2% discount on a 10% net margin gives away a fifth of the profit on that invoice. It works best when you have healthy margins and slow-paying customers, or when the alternative is invoice financing that costs more. Many small businesses get better results with a modest discount, such as 1/7 net 30, combined with a clear late payment fee for the other direction.

State the terms on the invoice exactly, and make sure your accounting system applies the discount only when payment actually arrives within the window. Disputes about whether a payment made on day 11 qualifies are common; decide your policy before the first one lands.

For buyers: a simple decision rule

Run the numbers here and compare the annualised rate with what your money earns or costs elsewhere. If the discount wins, schedule the payment for the last day of the discount window rather than immediately. If cash is too tight to pay everyone early, the suppliers offering the largest annualised rate are the ones to prioritise.

Frequently asked questions

Is the discount on the amount before or after tax?

Usually on the full invoice total including VAT or sales tax, unless the terms say otherwise. Enter whichever figure the discount applies to.

Why is the rate not just 2% × 18.25?

Because the base is the discounted amount, not the full price. You pay 98 to settle 100, so the return is 2 ÷ 98, not 2 ÷ 100. The difference is small but real.