Work out early payment discount roi instantly with clear inputs, formula shown and shareable results.
Taking early payment discounts across a spend portfolio is a treasury investment: the discount captured against the financing cost of paying sooner. At a 1.5% discount for 30 days the annualised return is over 18%, far above most companies' cost of capital.
Discount captured
Discount = Eligible spend x Discount %
Financing cost
Cost = Eligible spend x Days accelerated / 365 x Cost of capital %
Annualised return
Return % = Discount / (1 - Discount) x 365 / Days accelerated x 100
Because approval and invoice processing cycles are too slow to hit the discount window. Fixing the process is usually worth more than negotiating a bigger discount.
Only within your liquidity headroom. The return is attractive but not worth a covenant breach or a funding squeeze.