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.
Explanation of 2/10 net 30 payment terms: what it means, how to calculate the annualized cost, and when buyers should take the discount.
2/10 Net 30 Explained
"2/10 net 30" is a common trade credit term meaning:
- 2% discount if the invoice is paid within 10 days
- Full amount due within 30 days if the discount isn't taken
It appears on invoices as "2/10 N30."
The Real Cost of Skipping the Discount
Passing on a 2/10 net 30 discount is equivalent to borrowing money at 37.2% APR:
2% / 98% × 365 / 20 days = 37.2%
You're effectively paying 2% to keep the money for 20 extra days. That's extremely expensive financing.
When to Pass on the Discount
The only rational reason to pass on an early payment discount is if your cost of capital is lower than the annualized discount cost — and that's rarely the case for 2/10 net 30.
If you genuinely can't pay early because of cash constraints, that's a working capital problem to solve separately. Consider a revolving credit facility: borrowing at 8% to take a 37% annualized discount opportunity is clearly worthwhile.
Decision framework for whether to take an early payment discount, including the annualized cost comparison and working capital considerations.
The Take/Pass Decision
Take the early payment discount when: Annualized discount cost > Your cost of capital
Pass when: Annualized discount cost < Your cost of capital
For 2/10 net 30 at 37.2% annualized cost, almost any business should take the discount. The question is whether you have the cash.
Decision Matrix
Cash Position
Cost of Capital
Recommendation
Strong
Any rate
Always take the discount
Tight
Below discount cost
Borrow to take the discount
Tight
Above discount cost
Pass — preserving cash is cheaper
Crisis
N/A
Pass — survival first
When Suppliers Offer Discounts
If you're offering discounts to customers (as a seller), the math is reversed — you're the one paying. Model the cost carefully: offering 2/10 net 30 reduces your effective realized revenue by 2% on early payers.
The seller's-side math on whether offering an early payment discount like 2/10 net 30 is worth the cost, and when it makes sense to offer one.
Early payment discounts speed up cash collection, but they're effectively an interest
rate you're paying to get paid sooner — whether that trade is worth it depends on what
the cash is worth to you right now.
The implied annual cost of a standard discount
A 2/10 net 30 term (2% off if paid within 10 days, otherwise due in 30) means you're
giving up 2% to get paid 20 days earlier than the standard term. Annualized, that works
out to roughly:
Implied APR = Discount % / (100 - Discount %) × 365 / Days Early
For 2/10 net 30: (2 ÷ 98) × (365 ÷ 20) ≈ 37% annualized — a surprisingly high implied
interest rate for what looks like a small 2% discount.
When offering one makes sense anyway
You have a higher-return use for the cash: if faster cash lets you avoid a more
expensive short-term loan or line of credit, the discount can be cheaper than the
alternative financing cost
You're cash-constrained: for a business genuinely short on working capital, getting
paid in 10 days instead of 30 (or later, given how often "net 30" actually means "net
45+" in practice) can be worth a real cost
You want to reduce collection risk: faster payment reduces the window in which a
customer's financial situation could deteriorate before you're paid
When it's not worth it
If you're not cash-constrained and don't have a specific high-return use for the cash 20
days sooner, a 37%+ implied annual rate is an expensive way to buy speed — most
businesses in this position are better off not offering the discount and simply enforcing
standard terms consistently.
A cheaper alternative: shorter standard terms
Rather than offering a discount, consider simply shortening your standard terms (net 15
instead of net 30) for new customers, or requiring deposits for larger invoices — this
achieves faster cash collection without paying an implied 37% rate for it.
Frequently asked questions
Do most customers actually take the discount?
Take-up rates vary widely by customer type and cash position — well-capitalized customers
often skip it since 2% isn't meaningful to them, while cash-constrained ones are more
likely to take it, meaning you may be subsidizing exactly the customers most likely to pay
late otherwise.
Is there a standard discount percentage?
2/10 net 30 is the most common convention, but there's nothing forcing that specific
number — calculate the implied APR for any discount/days combination before offering it.
Use the Invoice Discount Calculator to compute the
implied annualized cost of any early payment discount terms you're considering.