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Early Payment Discount Calculator

Work out early payment discount instantly with clear inputs, formula shown and shareable results.

About Early Payment Discount Calculator

Terms of 2/10 net 30 mean paying 2% more for 20 extra days of credit — an annualised cost of about 37%, far above any normal borrowing rate. That comparison is the whole decision: if you can borrow more cheaply than the implied rate, always take the discount.

Formulas

Annualised cost

Cost % = Discount / (100 - Discount) x 365 / (Net days - Discount days) x 100

Effective annual rate

EAR = (1 + d/(1-d))^(365/extra days) - 1

Worked example

With the default values below, Early Payment Discount Calculator returns Annualised cost of not taking the discount of 37.24%. Change any input above and every figure here is recalculated in your browser.

Inputs used

Discount for early payment
2
Days to qualify for the discount
10
Net payment terms
30
Invoice value
50,000

Results

Annualised cost of not taking the discount
37.24%
Effective annual rate (compounded)
44.59%
Cash value of the discount
$1,000.00
Amount payable if paid early
$49,000.00

Step by step

  1. 1Values used
  2. 2Annualised cost
  3. 3Effective annual rate
  4. 4Annualised cost of not taking the discount= 37.24
  5. 5Effective annual rate (compounded)= 44.59
  6. 6Cash value of the discount= 1,000.00
  7. 7Amount payable if paid early= 49,000.00

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, tax, fees or charges or compounding frequency into account.
  • Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

Why divide by (1 - discount)?

Because the discount is a percentage of the invoice, but the amount you actually have at risk is the discounted price you would have paid.

When should I skip the discount?

Only when you have no access to cash at a lower rate than the implied cost, or when liquidity itself is the binding constraint.

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