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Cash & receivables

Early payment discount calculator — 2/10 net 30

Work out the annualised cost of 2/10 net 30 from either side, compare it to your cost of capital, and get a clear take-it-or-leave-it answer.

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Short answer

A 2/10 net 30 discount is worth taking when its annualised return beats your cost of capital. Paying 20 days early to save 2% earns 2 ÷ 98 = 2.04% over 20 days, which annualises to 37.2% simple or 44.6% compounded. Offering the same terms costs you that rate.

"2% off for paying 20 days early" sounds small. Annualised it is 37.2%, which is why the answer is almost always take it if you are buying and almost always think twice if you are selling. The same arithmetic runs both directions — only the sign changes.

Pick your side, enter the terms and your cost of capital. You get the periodic rate, the simple APR, the effective annual rate with compounding, the net cash effect per invoice and across a year, and the discount percentage at which the decision flips.

Your numbers

Which side are you on?
%

The 2 in 2/10 net 30.

days

The 10 in 2/10 net 30.

days

The 30 in 2/10 net 30 — when the invoice is due without the discount.

$

One representative invoice, so the cash effect is legible.

%

Marginal annual cost of funds — revolver rate, not WACC. This is the number the decision turns on.

$

Only the volume that genuinely carries this discount.

Result

Annualised return on paying early
37.2%

Simple APR against a 9.0% cost of capital · 44.6% with compounding

Discount captured on this invoice$960.00
Days of funding it moves20 days
Effective annual rate (compounded)44.6%
Break-even discount at 9.0%0.49%
Net gain on this invoice$728.02
Net gain a year on eligible spend$182,005
At a 20-day gap the decision flips at a 0.49% discount.
DiscountSimple APREffectiveDecision
0.5/10 net 309.2%9.6%Take
1/10 net 3018.4%20.1%Take
1.5/10 net 3027.8%31.8%Take
2/10 net 3037.2%44.6%Take
2.5/10 net 3046.8%58.7%Take
3/10 net 3056.4%74.3%Take
Periodic rate = 2.00 ÷ (100 − 2.00) = 2.0408% over 20 days
Simple APR = 2.0408% × 365 ÷ 20 = 37.2%
Effective = (1 + 0.020408) ^ (365 ÷ 20) − 1 = 44.6%
Funding $47,040.00 for 20 days at 9.0% = $231.98
Per invoice: $960.00 − $231.98 = $728.02 in the buyer's favour
Per year: $240,000 − $57,995 = $182,005
Take it. 37.2% annualised against 9.0% of capital is a 28.2-point spread — $728 net on this invoice and $182,005 a year across $12,000,000 of eligible spend. Only decline if paying on day 10 would breach a facility limit.

Everything is computed in your browser. Nothing you type is sent anywhere or stored.

The formula

Annualised rate = [Discount % ÷ (100 − Discount %)] × (365 ÷ (Net days − Discount days))
Discount %
The percentage knocked off for paying early — the 2 in 2/10 net 30.
Discount days
The deadline for the early payment — the 10 in 2/10 net 30.
Net days
When the invoice would otherwise be due — the 30 in 2/10 net 30.
365
Days in the year. Use 360 only if your loan facility is quoted that way.

The denominator of the first bracket is 100 − discount, not 100. You are giving up 2% to avoid paying 98%, so the periodic return is 2 ÷ 98 = 2.0408%, not 2%. Compounding that over the year gives the effective annual rate; multiplying gives the simple APR that lenders quote. Compare like with like against your own facility.

Worked example

Terms offered
2/10 net 30
Invoice amount
$48,000
Cost of capital
9%
Result
37.2% simple APR · 44.6% effective · take it

The discount saves $960, so you pay $47,040 twenty days early. The periodic return is 960 ÷ 47,040 = 2.0408% over 20 days, which is 37.2% annualised simple or 44.6% compounded. Funding $47,040 for 20 days at 9% costs $232, so the net gain is $728 on this invoice — about $182,000 a year on $12,000,000 of eligible spend. Break-even sits at a 0.49% discount.

How the early payment discount maths works

Two mistakes account for nearly every wrong answer. The first is dividing by 100 instead of by 100 minus the discount: you are not saving 2% of the money you part with, you are saving 2 to avoid parting with 98. The second is annualising over the full 30 days instead of the 20 days of funding you actually gain or lose.

TermsDays of fundingPeriodic rateSimple APREffective annual
1/10 net 30201.01%18.4%20.1%
2/10 net 30202.04%37.2%44.6%
3/10 net 30203.09%56.4%74.4%
1/15 net 45301.01%12.3%13.0%
2/10 net 45352.04%21.3%23.5%
2/10 net 60502.04%14.9%15.9%
Same discount, different day gap, very different rate. Stretching net terms is what makes a discount affordable to offer.

If you are taking the discount

The test is one comparison: annualised return against your marginal cost of funds. If your revolver sits at 9% and the discount annualises at 37.2%, taking it is the highest-return use of that cash short of an emergency. Two conditions have to hold, though.

  • You must actually have the cash, or headroom to draw it. The return is real; a covenant breach is more real.
  • You must hit the discount date reliably. Missing it means you paid on day 10 and got nothing, which is a pure loss of 20 days of funding.
  • Check the discount base. Some suppliers apply the discount to goods only, excluding freight and tax, which quietly cuts the saving.

If you are offering the discount

You are borrowing from your customers at that annualised rate. At 37.2% against a 9% facility, a blanket 2/10 net 30 is expensive financing. It can still be the right call, but for reasons other than the arithmetic: it pulls cash forward when a facility is maxed out, it cuts the bad-debt tail, and it removes collections effort on the accounts that take it.

Setting a discount you can afford

Work backwards from your cost of capital. At 9% over 20 days the break-even discount is 0.49%, so anything above roughly half a percent is costing you more than borrowing. If you need the acceleration, widening net terms is cheaper than raising the discount: 2/10 net 60 buys 50 days of funding for the same 2% and lands at 14.9% instead of 37.2%.

Deciding this properly needs your own numbers: which customers take the discount, how often they take it late, and what the discount actually cost last quarter. That is a query against payment dates and discount lines rather than a policy discussion. Ask for it and the SuiteQL comes with the answer.

Frequently asked questions

Is 2/10 net 30 worth taking?

Almost always, if you have the cash. It returns 2 ÷ 98 = 2.04% for 20 days, which is 37.2% annualised simple and 44.6% compounded. Any cost of capital below roughly 37% makes taking it the better use of the money. The exception is when paying early would breach a facility limit or leave you short.

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

Divide the discount by (100 − discount), then multiply by 365 divided by the days of funding gained. For 2/10 net 30: 2 ÷ 98 = 2.0408%, times 365 ÷ 20 = 18.25, gives 37.2%. Use the days between the discount date and the net due date, not the full net term.

Why divide by 98 instead of 100?

Because 98 is what you actually pay. Taking the discount means handing over $98 today rather than $100 in 20 days, so the return is measured on the $98 you committed. Dividing by 100 understates every discount slightly — 37.2% becomes 36.5% for 2/10 net 30, and the error grows with the discount.

What is the difference between simple APR and the effective annual rate?

Simple APR multiplies the periodic rate by the number of periods in a year, which is how lenders quote credit lines. The effective rate compounds it, which is what you would truly earn by rolling the gain 18.25 times. For 2/10 net 30 that is 37.2% versus 44.6%. Compare against a rate quoted the same way.

Should I offer early payment discounts to customers?

Only if the annualised cost is below your cost of funds, or if you are buying something other than money — a shorter bad-debt tail, less collections work, or cash inside a facility limit. Widening net terms lowers the annualised cost far more cheaply than raising the discount percentage.

What if a customer takes the discount but pays late?

Then the terms have become an unadvertised price cut. Measure it: compare the discount taken against the actual payment date on every remittance. Either short-pay disputes get corrected on the next invoice or the term is withdrawn for that account. Tolerating it makes the calculation above meaningless.

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