Early Payment Discount Calculator

Terms like 2/10 Net 30 are a loan in disguise. Enter the discount, the window, and the full term to see the rate you actually earn by paying early — or, from the other side of the invoice, the rate you pay to offer it. All math runs locally in your browser — the figures you enter are never transmitted.

Presets only fill in the three numbers below — edit any of them and the preset switches to Custom.
Leave it blank for the rate only. Fill it in to see the discount and the two payment amounts in dollars.
Your own borrowing rate or the return you give up — this page never supplies one for you.
The formula below uses 365; picking 360 only swaps that one number.

How the math works

Implied annual rate (simple): rate % = (d ÷ (100 − d)) × (365 ÷ (n − w)) × 100

Return over the early period: d ÷ (100 − d) — the discount measured against the money you actually pay, not the face value.

Periods per year: 365 ÷ (n − w) — how many times that early period fits into a year. On a 360-day basis, use 360.

Same rate compounded (EAR): EAR % = ((1 + d ÷ (100 − d)) ^ (365 ÷ (n − w)) − 1) × 100 — the simple version above adds the periods up, this one lets each period earn on the last.

In dollars, if you enter an amount: discount = amount × d ÷ 100, paid early = amount − discount, and the full amount is what you pay on day n.

This is the standard trade-credit (cash discount) annualization — the expression you use to put a discount on the same footing as a borrowing rate. Everything on this page is derived from the numbers you type; no rates, averages, or benchmarks are pre-supplied.

Worked example: 2/10 Net 30 on a $10,000 invoice

Running the formula above, step by step, with d = 2, w = 10, n = 30:

  1. Days paid early: 30 − 10 = 20 days.
  2. Return over those 20 days: 2 ÷ (100 − 2) = 2 ÷ 98 = 0.020408, i.e. 2.0408%.
  3. How many 20-day periods in a year: 365 ÷ 20 = 18.25.
  4. Annualized, simple: 0.020408 × 18.25 × 100 = 37.24% per year (37.2449% before rounding).
  5. Compounded instead: ((1 + 2 ÷ 98) ^ 18.25 − 1) × 100 = 44.59% per year. (Carry the full 2 ÷ 98 here rather than the rounded 0.020408 — over 18.25 periods the rounding shows up in the second decimal.)

In dollars: the discount is 10,000 × 2 ÷ 100 = $200. You pay $9,800 on day 10 instead of $10,000 on day 30 — $200 for the use of $9,800 over 20 days. Read from the seller's chair, the same $200 is what 20 days of earlier cash costs you.

Who should take the discount

Buyer. You are choosing between two prices for the same invoice, 20 days apart, so compare two annual rates: the implied rate this calculator gives you, and your own cost of capital — what the money costs you if you borrow it (line of credit, card, overdraft), or what you give up by pulling it out of wherever it sits. If the implied rate is the higher of the two, paying early is the cheaper option; if it is lower, holding the cash to the due date is. If paying early would leave you short for payroll, rent, or tax, that settles it on its own — liquidity outranks the rate comparison.

Seller. The number does not change, only who wears it. Offering these terms means buying n − w days of earlier cash at that implied annual rate. If money costs you less than the implied rate from any other source, that source is cheaper than discounting; if it costs more — or nothing else is available at any price — the discount is buying liquidity you could not otherwise get. Two things the formula cannot tell you: not every buyer takes the discount, so your realized cost only applies to the invoices actually paid early, and a discount left permanently on the table still sets the price expectation.

Both readings compare numbers you supply. Enter your own cost of capital in the form and the result will state the comparison and the gap in percentage points.

Not financial, accounting, or tax advice. The formula assumes payment lands exactly on the discount deadline or exactly on the net due date, counts calendar days from the invoice date, and ignores bank clearing time, card or transfer fees, and any late-payment interest. It also assumes the discount applies to the amount shown — your contract governs whether it applies to tax and shipping, when the clock starts, and whether the discount can be taken at all. Every figure here is computed from the values you enter.

Early payment discount FAQ

What does 2/10 Net 30 mean?

The buyer may deduct 2% if the invoice is paid within 10 days of the invoice date; otherwise the full amount is due on day 30. In the general notation d/w Net n, d is the discount percent, w is the discount window in days, and n is the full term in days.

How do you calculate the annualized cost of an early payment discount?

Annualize the discount over the days you actually pay early: implied annual rate = (d / (100 - d)) x (365 / (n - w)) x 100. For 2/10 Net 30 that is (2 / 98) x (365 / 20) x 100 = 0.020408 x 18.25 x 100, which is 37.24% per year.

Should I take the early payment discount or keep the cash?

Compare the implied annual rate with your own cost of capital — the annual rate you pay on the money you would use to pay early, or the annual return you give up by moving that cash. If the implied rate is higher, paying early is the cheaper of the two; if it is lower, keeping the cash until the due date is. If paying early would leave you short for payroll, rent, or tax, liquidity decides it regardless of the rate. This calculator supplies no benchmark rate: enter your own number and it compares the two.

Why divide by (100 - discount %) instead of by 100?

Because the discount is measured against the money you actually hand over, not the face value. On a $1,000 invoice at 2/10 Net 30 you pay $980, and the $20 you saved buys you 20 extra days of use of that $980 — so the period return is 20 / 980 = 2.0408%, not 20 / 1000 = 2%. Dividing by (100 - d) captures that.