Work out payment term value (cash discount) instantly with clear inputs, formula shown and shareable results.
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.
Annualised return
Return % = Discount / (1 - Discount) x 365 / (Standard days - Discount days) x 100
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.
Frequently, especially with suppliers who are cash-constrained. Offering to pay in ten days for 1.5% is often accepted.