The formula
Annual rate = discount ÷ (100% − discount) × 365 ÷ (net days − discount days). Paying $9,800 on day 10 instead of $10,000 on day 30 means you earn $200 on $9,800 for 20 days. That is 2.04% for 20 days, or 37.2% over a year. The compounded rate (the return if you could repeat it all year) is higher, at 44.6%.
Common terms and what they're worth
| Terms | Meaning | Annual rate (simple) | Compounded |
|---|---|---|---|
| 1/10 net 30 | 1% off if paid within 10 days, otherwise due in 30 | 18.4% | 20.1% |
| 2/10 net 30 | 2% off within 10 days, due in 30 | 37.2% | 44.6% |
| 2/15 net 30 | 2% off within 15 days, due in 30 | 49.7% | 63.5% |
| 3/10 net 30 | 3% off within 10 days, due in 30 | 56.4% | 74.4% |
| 2/10 net 45 | 2% off within 10 days, due in 45 | 21.3% | 23.5% |
| 2/10 net 60 | 2% off within 10 days, due in 60 | 14.9% | 15.9% |
| 1/15 net 45 | 1% off within 15 days, due in 45 | 12.3% | 13.0% |
| 1/10 net 60 | 1% off within 10 days, due in 60 | 7.4% | 7.6% |
When to take the discount
Take it when the annual rate is higher than your cost of cash. If you would draw on a credit line at 9% to pay early, a 2/10 net 30 discount at 37% is still far cheaper. Skip it when the rate is below what the cash earns, or when paying early would leave you short for payroll or other fixed payments. Most companies miss discounts not because of the maths but because invoices aren't approved within the discount window.
Offering discounts to your customers
For a seller, the same number is the cost of getting paid early. Offering 2/10 net 30 costs about 37% a year on the invoices where customers take it. That's worth it only if slow payment is costing you more, through borrowing, bad debt or collection effort.
Frequently asked questions
What does 2/10 net 30 mean?
You can take 2% off the invoice if you pay within 10 days of the invoice date. Otherwise the full amount is due within 30 days.
Should I use the simple or the compounded rate?
Compare the simple annual rate with your borrowing rate or deposit rate, which are also quoted as simple annual rates. The compounded rate shows the upper bound if you could take the same discount repeatedly all year.
What if I pay after the due date anyway?
Stretching payment past the due date lowers the value of the discount, because you get more days of credit for free. It also risks late fees, supplier goodwill and credit terms. The calculator assumes you pay on time.
Is my invoice data uploaded?
No. Everything is calculated in your browser and nothing is sent to a server.