Invoice Payment Terms Calculator
The annualized cost of skipping an early-payment discount on terms like 2/10 net 30 — and whether borrowing to take it beats holding the cash.
Invoice Payment Terms Calculator: with the default inputs, annualized cost of not taking the discount is 37.24%.
The "2" in 2/10 net 30 — the percentage off for paying early.
The "10": pay within this many days to earn the discount.
The "30": when the full amount falls due.
The rate on your line of credit, or what the cash would otherwise earn. This is what the discount competes against.
- Verdict
- Take the discount. Skipping it costs 37.24% a year — against your 9% cost of money, it is worth borrowing to pay on day 10, netting $151.67 on this invoice.
- Effective annual cost (compounded)
- 44.59%The nominal figure compounded over the year — the true rate if you skip the discount on every invoice.
- Cost over the credit period
- 2.0408%
- Days of credit bought
- 20Net days minus discount days — the extra time you're paying for.
- Discount
- $200.00
- Pay this if you pay early
- $9,800.00
- Interest to borrow the early payment
- $48.33
- Net saving from paying early
- $151.67The discount less the interest cost of funding it for the extra days.
- Annual net saving across all invoices
- $1,820
- Borrowing rate at which it stops paying
- 37.24%
Assumptions
- The nominal annualized cost follows the standard cost-of-trade-credit formula: discount ÷ (100 − discount) × days a year ÷ days of credit.
- The effective figure compounds that period rate over a full year, which assumes the same decision is repeated on every invoice.
- The clock runs from the invoice date, and the discount applies to the whole invoice.
- Interest to borrow the early payment is simple interest over the extra days, on the discounted amount.
- No late-payment penalties, and no assumption that the supplier tolerates paying beyond net terms.
| Terms | Days of credit | Annualized cost | Compounded | Discount on $10,000 |
|---|---|---|---|---|
| 1/10 net 30 | 20 | 18.43% | 20.13% | $100.00 |
| 2/10 net 30 | 20 | 37.24% | 44.59% | $200.00 |
| 3/10 net 30 | 20 | 56.44% | 74.35% | $300.00 |
| 2/10 net 45 | 35 | 21.28% | 23.45% | $200.00 |
| 2/10 net 60 | 50 | 14.9% | 15.89% | $200.00 |
| 1/15 net 45 | 30 | 12.29% | 13.01% | $100.00 |
| 2/15 net 60 | 45 | 16.55% | 17.81% | $200.00 |
| 1/10 net 60 | 50 | 7.37% | 7.61% | $100.00 |
2/10 net 30 is 37.24% a year — more than almost any line of credit. It is the single most under-used piece of arithmetic in small-business finance.
How this is worked out
The formula
Terms "d/dd net nd" mean: take d% off if you pay within dd days, otherwise the full amount is due on day nd. Days of credit = nd − dd Cost per period = d ÷ (100 − d) ← you forgo d to keep (100 − d) for the extra days Periods a year = 365 ÷ (nd − dd) Annualized (nominal) cost = d ÷ (100 − d) × 365 ÷ (nd − dd) Effective annual cost = [1 + d ÷ (100 − d)]^(365 ÷ (nd − dd)) − 1 Net saving from paying early = discount − early amount × borrowing rate × (nd − dd) ÷ 365
Open How it’s calculated above to see this worked through with your own numbers.
What you enter
- Invoice amount
- A number.in dollars · 0 or more · defaults to 10000
- Early-payment discount
- The "2" in 2/10 net 30 — the percentage off for paying early.a percentage · from 0 to 99 · defaults to 2
- Discount period
- The "10": pay within this many days to earn the discount.from 0 to 365 · whole numbers only · defaults to 10
- Net terms
- The "30": when the full amount falls due.from 1 to 365 · whole numbers only · defaults to 30
- Your cost of money
- The rate on your line of credit, or what the cash would otherwise earn. This is what the discount competes against.a percentage · from 0 to 100 · defaults to 9
- Days a year(under More options)
- 365 is standard; some textbooks and money markets use 360.from 300 to 366 · whole numbers only · defaults to 365
- Invoices like this a year(under More options)
- Scales the saving up to an annual figure.from 0 to 10000 · whole numbers only · defaults to 12
What you get back
- Annualized cost of not taking the discountmain answer
- Verdict
- Effective annual cost (compounded)
- The nominal figure compounded over the year — the true rate if you skip the discount on every invoice.
- Cost over the credit period
- Days of credit bought
- Net days minus discount days — the extra time you're paying for.
- Discount
- Pay this if you pay early
- Interest to borrow the early payment
- Net saving from paying early
- The discount less the interest cost of funding it for the extra days.
- Annual net saving across all invoices
- Borrowing rate at which it stops paying
What this assumes
- The nominal annualized cost follows the standard cost-of-trade-credit formula: discount ÷ (100 − discount) × days a year ÷ days of credit.
- The effective figure compounds that period rate over a full year, which assumes the same decision is repeated on every invoice.
- The clock runs from the invoice date, and the discount applies to the whole invoice.
- Interest to borrow the early payment is simple interest over the extra days, on the discounted amount.
- No late-payment penalties, and no assumption that the supplier tolerates paying beyond net terms.
About this calculator
2/10 net 30 means take 2% off if you pay within ten days, otherwise the full amount is due on day thirty. Almost everyone reads that as "2% — not worth the cash-flow hit". The arithmetic says otherwise, and it is not close.
Why it's 37.24%, not 2%
Two things trip people up. First, the base: you give up 2 to keep 98, so the cost of the credit is 2 ÷ 98 = 2.04%, not 2%. Second, the period: you're not buying a year of credit, you're buying twenty days — the difference between day 10 and day 30. There are 18.25 such periods in a year.
2.0408% × 18.25 = 37.24% a year.
That is the standard cost-of-trade-credit figure, and it is dramatically more than any bank will charge you. Compounded properly — if you skip the discount on every invoice all year — it is 44.6%. Either way, a business skipping 2/10 net 30 while carrying a balance on a 9% line of credit is paying four times too much for the same money.
How to use it
Enter the terms exactly as they appear on the invoice, plus your genuine cost of money: the rate on your line of credit, or what the cash earns if it simply sits. The verdict compares the two directly. The net saving line goes further and prices the actual trade — borrow the discounted amount for the extra twenty days, pay the interest, and see what's left over. On a $10,000 invoice at a 9% borrowing rate: $200 of discount less $48.33 of interest leaves $151.67, on one invoice.
The breakeven rate is the borrowing rate at which the discount stops being worth taking — and it's the same 37.24%, which is the point: virtually no legitimate financing costs that much.
When to skip the discount anyway
The arithmetic is decisive but not the whole decision:
- If you have no cash and no facility, a 37% annualized cost is irrelevant; you cannot spend a percentage. Survival first.
- If the cash is your only buffer, keeping it may be worth more than the discount. Discounts are an optimization, not an emergency fund.
- If the supplier never actually enforces net 30 and you routinely pay on day 60 without penalty, your real terms are net 60 and the credit is far cheaper than the invoice suggests. Price what happens, not what's printed.
- If taking the discount requires borrowing you can't get, the comparison is moot.
The other side of the invoice
If you're the one offering the discount, run the same numbers backwards: offering 2/10 net 30 is borrowing from your customers at 37% a year, which is a very expensive way to accelerate collections. It can still be right — if it reliably shortens your DSO by twenty days and you're funding a stretched working-capital position, that may beat the alternatives — but decide it deliberately. Many companies offer 2/10 because their competitors do, then discover that customers take the discount and pay on day 30 anyway.
Fine print worth checking
Whether the clock starts at invoice date or receipt of goods; whether the discount applies to the goods only or includes freight and tax; and whether your accounts-payable process can physically pay within ten days. A discount you can't operationally capture is not a discount.
Frequently asked questions
▸What does 2/10 net 30 mean?
Take 2% off the invoice if you pay within 10 days; otherwise the full amount is due on day 30. The discount buys the supplier twenty days of your cash — and costs you 37.24% a year if you pass it up.
▸How do you calculate the cost of forgoing an early-payment discount?
Discount ÷ (100 − discount) gives the cost over the credit period; multiply by 365 ÷ (net days − discount days) to annualize. For 2/10 net 30: 2/98 × 365/20 = 37.24%.
▸Why is 2% equal to 37% a year?
Because you're only buying twenty days of credit, and there are 18.25 twenty-day periods in a year. The 2% is also measured against the 98 you keep, not the 100 you owe, which makes the period cost 2.04%.
▸Should I borrow money to take an early-payment discount?
Almost always yes when the terms are 2/10 net 30 or better, because 37% annualized beats any legitimate line of credit. The exceptions are when you have no facility, or when the cash is your only liquidity buffer.
▸Should my business offer an early-payment discount?
Only deliberately. Offering 2/10 net 30 is borrowing from your customers at roughly 37% a year. It can be worth it to shorten a stretched cash conversion cycle, but many companies offer it out of habit and end up discounting invoices that would have been paid on time regardless.
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