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Payment Term Value (Cash Discount) Calculator

Work out payment term value (cash discount) instantly with clear inputs, formula shown and shareable results.

About Payment Term Value (Cash Discount) Calculator

Taking a cash discount is an investment decision: you give up days of credit in exchange for a percentage saving. Annualising that saving lets you compare it directly with your cost of borrowing, and terms of 2/10 net 45 return well over 20% a year.

Formula

Annualised return

Return % = Discount / (1 - Discount) x 365 / (Standard days - Discount days) x 100

Worked example

With the default values below, Payment Term Value (Cash Discount) Calculator returns Annualised return from taking the discount of 21.28%. Change any input above and every figure here is recalculated in your browser.

Inputs used

Invoice value
2,400,000
Cash discount for early payment
2
Days to qualify for the discount
10
Standard payment terms
45

Results

Annualised return from taking the discount
21.28%
Cash value of the discount
$48,000.00
Amount payable if paid early
$2,352,000.00
Days of credit given up
35

Step by step

  1. 1Values used
  2. 2Annualised return
  3. 3Annualised return from taking the discount= 21.28
  4. 4Cash value of the discount= 48,000.00
  5. 5Amount payable if paid early= 2,352,000.00
  6. 6Days of credit given up= 35

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.

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

Frequently Asked Questions

Should I always take the discount?

Yes if the annualised return exceeds your marginal cost of funds and you have the liquidity. It is one of the highest-return uses of cash available.

Can I negotiate a discount where none is offered?

Frequently, especially with suppliers who are cash-constrained. Offering to pay in ten days for 1.5% is often accepted.

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