Early Payment Discount Calculator

Terms like 2/10 net 30 offer a discount for paying early. Enter the invoice amount and the terms, and this calculator shows what to pay inside the discount window, how much is saved, and the yearly rate that skipping the discount really costs. It helps both the business offering the discount and the one deciding whether to take it.

What you enter

  • Invoice amount
  • Discount
  • Discount window
  • Net term

What you get

  • Amount to pay within the window
  • Saving
  • Yearly cost of skipping the discount

How it works

  1. Enter the invoice amount.
  2. Enter the discount percent, the discount window in days and the full net term in days. For 2/10 net 30 that is 2, 10 and 30.
  3. Read the amount to pay early, the saving, and the effective yearly cost of paying on the last day instead.
  4. Compare that yearly cost with what your money earns elsewhere or what borrowing costs you.

Reading discount terms

Early payment terms are written as discount/days net days. 1/10 net 30 means 1% off within 10 days, full amount within 30. 2/15 net 45 means 2% off within 15 days, full amount within 45. The discount only applies to the invoice amount, not to taxes or shipping, unless your terms say so.

The discount window and the net term usually start on the same day, the invoice date. That is why the gap between them, not the net term itself, is what matters when you compare the saving with the cost of paying early.

Should you offer one

For the seller, a discount is a price cut in exchange for faster cash. The yearly figure tells you what that cash costs. If it is far above the rate of a business credit line, the discount is an expensive habit, and a deposit or shorter terms may be better.

For the buyer, the same figure works the other way. If paying early saves the equivalent of a high yearly rate and you have the cash, taking the discount usually beats leaving the money in the bank. If you would need to borrow at a higher rate to pay early, it does not.

Tips

  • Read 2/10 net 30 as: take 2% off if you pay within 10 days, otherwise pay the full amount within 30 days.
  • If you offer a discount, the yearly figure shows what it costs you. A small percent over a short gap is an expensive way to borrow cash early.
  • Count the window from the invoice date unless your terms say otherwise, and print the discount deadline as a date on the invoice.
  • Discounts work best with clients who pay by bank transfer quickly anyway. For slow payers, a deposit may do more for your cash flow.

Frequently asked questions

How do I calculate a 2/10 net 30 discount?

Multiply the invoice by the discount percent and subtract it. On a $5,000 invoice, 2% is $100, so paying within 10 days costs $4,900 instead of $5,000.

What is the cost of not taking the discount?

It is the discount divided by the discounted price, scaled to a year: discount / (100 - discount) x 365 / (net days - discount days). For 2/10 net 30 that is 2 / 98 x 365 / 20 = 37.24% a year.

Why is the yearly cost so high?

Because you save 2% for paying only 20 days sooner. Twenty days is a short time, and repeating that saving over a whole year adds up to a large rate.

Is the yearly rate compounded?

No. This calculator gives the simple yearly rate that accountants usually quote. A compounded figure would be slightly higher.

Is this financial advice?

No, it is an estimate to help compare options. Whether to offer or take a discount depends on your cash flow and costs, so check with your accountant if it matters.

Related: Invoice due date calculator, Invoice late fee calculator, Profit margin calculator.

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