Early Payment Discount Calculator

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.
About this page

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.

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.