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Early Payment Discount Formula
For a "2/10 net 30" term (2% discount if paid within 10 days, otherwise due in 30):
Annualized Cost = Discount % / (100 - Discount %) × 365 / (Net Days - Discount Days)
Example (2/10 net 30):
2 / 98 × 365 / 20 = 37.2%
Passing on a 2/10 net 30 discount is equivalent to borrowing at 37.2% APR — almost always worth taking if you have the cash.
When to Take the Discount
Take the early payment discount when your annualized cost of passing on the discount exceeds your cost of capital (cost of a line of credit, opportunity cost of cash).
| Your borrowing rate | Discount annualized cost | Decision |
|---|---|---|
| 8% | 37.2% | Take the discount |
| 8% | 6% | Pass — borrowing is cheaper than losing the discount |
Dynamic Discounting
Some AP platforms offer dynamic discounting — variable rates based on days paid early. Use this calculator to evaluate any offer by computing the implied annualized cost.