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Early Payment Discount ROI Calculator

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

About Early Payment Discount ROI Calculator

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.

Formulas

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

Worked example

With the default values below, Early Payment Discount ROI Calculator returns Net annual benefit of $1,824,657.53. Change any input above and every figure here is recalculated in your browser.

Inputs used

Annual spend eligible for the discount
240,000,000
Discount for early payment
1.5
Days payment is accelerated
30
Cost of capital
9

Results

Net annual benefit
$1,824,657.53
Discount captured
$3,600,000.00
Cost of funding the acceleration
$1,775,342.47
Annualised return on the cash deployed
18.53%

Step by step

  1. 1Values used
  2. 2Discount captured
  3. 3Financing cost
  4. 4Annualised return
  5. 5Net annual benefit= 1,824,657.53
  6. 6Discount captured= 3,600,000.00
  7. 7Cost of funding the acceleration= 1,775,342.47
  8. 8Annualised return on the cash deployed= 18.53

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 or tax 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.

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 do so few companies capture these discounts?

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.

Should I take discounts if cash is tight?

Only within your liquidity headroom. The return is attractive but not worth a covenant breach or a funding squeeze.

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Early Payment Discount ROI Calculator | Calcrivo