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Early Payment Discount Calculator

Evaluates cash-discount payment terms such as 2/10 net 30: the discount on an invoice, the amount due if paid early, and the annualized simple and effective interest rate implied by forgoing the discount (the cost of trade credit).

When to use

A supplier offers a percentage discount for paying an invoice within a few days and you want the annualized return of paying early, or whether borrowing to take the discount is worthwhile.

Do not use when: You need a plain price reduction without payment terms (use discount), or a late-payment penalty or interest charge. Informational; not financial advice.

Formula

d = discount_percent / 100; discount_amount = invoice_amount × d; amount_if_paid_early = invoice_amount × (1 − d); days = net_days − discount_days; simple = d / (1 − d) × 365 / days × 100; effective = ((1 + d / (1 − d))^(365 / days) − 1) × 100

Standard cost-of-trade-credit formula: paying on the net date instead of the discount date is a loan of the discounted amount for (net − discount) days at interest equal to the discount. The simple rate is comparable with a nominal borrowing APR; the effective rate assumes the gain is reinvested every period.

Inputs

Parameter	Type	Unit	Required	Description
`discount_percent`	number	%	default 2	Percentage taken off the invoice when paid within discount_days (the 2 in 2/10 net 30). Range: ≥ 0, ≤ 99
`discount_days`	integer	days	default 10	Days from the invoice date during which the discount applies (the 10 in 2/10 net 30). Range: ≥ 0, ≤ 365
`net_days`	integer	days	default 30	Days until the full amount is due without discount (the 30 in 2/10 net 30); must exceed discount_days. Range: ≥ 1, ≤ 730
`invoice_amount`	number		default 1000	Gross invoice amount before the discount. Range: > 0, ≤ 1000000000000
`borrowing_rate_percent`	number	%	no	Annual rate at which you could borrow to pay early (e.g. a credit line APR); used only for the recommendation. Range: ≥ 0, ≤ 1000

Outputs

Output	Type	Unit	Description
`discount_amount`	number		invoice_amount × discount_percent / 100.
`amount_if_paid_early`	number		invoice_amount − discount_amount.
`days_of_credit_given_up`	integer	days	net_days − discount_days: how much earlier the cash leaves.
`implicit_rate_for_period_percent`	number	%	discount / (1 − discount) × 100: the discount as a percentage of the discounted amount, i.e. the interest paid for the extra days.
`annualized_rate_simple_percent`	number	%	Cost for the period × 365 / days_of_credit_given_up: the nominal annual cost of trade credit.
`annualized_rate_effective_percent`	number	%	((1 + cost for the period)^(365 / days) − 1) × 100: the compounded annual cost.
`terms_text`	string		The terms in standard notation, e.g. "2/10 net 30".
`recommendation`	string		Whether taking the discount beats the borrowing rate (or a general interpretation when no rate is given).

Example

2/10 net 30 on a 1,000 invoice: {"discount_percent":2,"discount_days":10,"net_days":30,"invoice_amount":1000} → {"discount_amount":20,"amount_if_paid_early":980,"days_of_credit_given_up":20,"implicit_rate_for_period_percent":2.04,"annualized_rate_simple_percent":37.24,"annualized_rate_effective_percent":44.59,"terms_text":"2/10 net 30"}

1/15 net 45 on 5,000 with an 8 % credit line: {"discount_percent":1,"discount_days":15,"net_days":45,"invoice_amount":5000,"borrowing_rate_percent":8} → {"discount_amount":50,"amount_if_paid_early":4950,"days_of_credit_given_up":30,"annualized_rate_simple_percent":12.29,"annualized_rate_effective_percent":13.01,"terms_text":"1/15 net 45"}

GET https://tttkmbb.com/api/v1/calculate/early-payment-discount?discount_percent=2&discount_days=10&net_days=30&invoice_amount=1000

Machine access

API: GET https://tttkmbb.com/api/v1/calculate/early-payment-discount (query parameters) or POST with a JSON body {"inputs": {...}}
Schema: https://tttkmbb.com/api/v1/calculators/early-payment-discount · Markdown: https://tttkmbb.com/finance/early-payment-discount.md · JSON definition: https://tttkmbb.com/finance/early-payment-discount.json
MCP: server https://tttkmbb.com/mcp, tool run_calculator with calculator_id="early-payment-discount"
OpenAPI operationId: calculate_early_payment_discount
Freshness: static. Authentication: none. Rate limit: fair use (see rate limits).

Sources

Wikipedia – Discounts and allowances (cash discounts such as 2/10 net 30) (reference)
Wikipedia – Net D (payment terms such as 2/10 net 30) (reference)
Corporate Finance Institute – 2/10 Net 30: how trade credit works (reference)

FAQ

Why is 2 % worth 37 % per year?

The 2 % is earned in only 20 days (day 10 to day 30). 2/98 = 2.04 % per 20 days, and there are 365/20 = 18.25 such periods in a year: 2.04 % × 18.25 ≈ 37.2 %.

Which rate should I compare with my loan rate?

Use the simple rate against a nominal APR on a short-term credit line, since the borrowed money is only needed for the 20 days; the effective rate shows the compounded equivalent for comparison with investment yields.

What if the discount is 0 or the periods are equal?

With no discount there is no cost of trade credit (rates are 0). net_days must exceed discount_days; equal periods would mean the discount is available until the due date, so there is nothing to give up.

Related calculators

Discount Calculator — Plain percentage discount on a price.
APY Calculator — Convert a nominal annual rate into its effective yield.
Simple Interest Calculator — Interest for a short period at a simple rate.