Payment terms calculator
A 2% discount for paying twenty days early is an enormous implied interest rate. Suppliers often do not realise what they are offering.
%
days
days
Effective annual rate of the discount
44.59%
- Simple annualised rate
- 37.24 %
- Cash saved on this invoice
- 200.00
- Amount to pay early
- 9800.00
- Days of credit given up
- 20
- Rate per period
- 0.020 408
Show the working
- Discount for early payment = 2
- Discount period = 10
- Full payment due = 30
- Invoice value = 10 000
- Days of credit given up = max(30 - 10, 1) = 20
- periods = 365 / 20 = 18.25
- Rate per period = 2 / (100 - 2) = 0.020 408 2
- Simple annualised rate = 0.020 408 2 * 18.25 * 100 = 37.2449
- Effective annual rate of the discount = ((1 + 0.020 408 2)^18.25 - 1) * 100 = 44.5853
- Cash saved on this invoice = 10 000 * 2/100 = 200
- Amount to pay early = 10 000 - 200 = 9800
Values are shown to six significant figures here; the arithmetic itself runs on exact fractions and is only rounded where a number is printed.
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The formula
- period rate = discount / (100 - discount)
- effective annual rate = (1 + period rate)^(365 / days gained) - 1
2/10 net 30 works out at about 44% simple annualised, or 55% compounded. Take the discount if you can fund it.