Early Payment Discount Calculator
Supplier terms like 2/10 net 30 hide a surprisingly large interest rate, and this calculator brings it into the open. The term means you can take a 2 percent discount if you pay within 10 days, or pay the full amount in 30 days. By skipping the discount you effectively borrow the invoice amount for the extra 20 days, and the price of that short loan is the 2 percent you gave up. Because there are many 20 day windows in a year, annualizing that cost produces a rate near 37 percent, far above almost any line of credit, which is why finance teams usually pay early when cash allows. Enter the discount percent, the days to earn it, and the net days until the full balance is due, and the calculator returns the effective annualized cost of not taking the discount so you can compare it against your cost of capital. The only time to skip a good discount is when paying early would cause a real cash shortfall. Every figure is computed deterministically from the formula shown below, with a worked example that reconciles exactly to the calculator defaults so you can trust the rate before you set a payment policy.
The annualized cost of skipping a discount is (d / (1 - d)) x (365 / (net - disc days)). Forgoing 2/10 net 30 costs an effective annual rate of 37.24%, so paying early almost always wins.
Early payment discount formula
Effective annual rate = ( d / (1 - d) ) x ( 365 / (N - D) )
d = discount rate (as a decimal)
D = discount days, N = net days
N - D = extra days you hold the cash
The first term is the cost of skipping the discount over the extra credit period; the second annualizes it across a 365 day year. A small discount becomes a large annual rate because the credit period is short.
Worked example
A supplier offers 2/10 net 30: a 2 percent discount within 10 days, otherwise due in 30.
- Extra credit days = 30 - 10 = 20
- Cost over the period = 0.02 / (1 - 0.02) = 0.02 / 0.98 = 0.020408
- Annualize = 0.020408 x (365 / 20) = 0.020408 x 18.25 = 0.372449
- Effective annual rate = 37.24%
Skipping the discount costs about 37.24% a year. These are the calculator's default inputs, so the result above matches the widget exactly.
Effective annual rate of common terms
Even modest discounts annualize into rates well above typical borrowing costs.
| Term | Extra days | Effective annual rate |
|---|---|---|
| 1/10 net 30 | 20 | 18.43% |
| 2/10 net 30 | 20 | 37.24% |
| 2/10 net 45 | 35 | 21.28% |
| 3/15 net 45 | 30 | 37.63% |
Cost of capital and borrowing basics: US Securities and Exchange Commission, Investor.gov.
Early payment discount calculator: frequently asked questions
What does 2/10 net 30 mean?
It is a supplier's payment term offering a 2 percent discount if the invoice is paid within 10 days, with the full amount otherwise due in 30 days. The numbers generalize: the first is the discount percent, the second is the days to earn it, and the net figure is the days until the full balance is due. This calculator turns any such term into an annualized rate so you can compare it to other uses of cash.
Why is the effective rate so high?
Skipping a 2 percent discount to hold cash an extra 20 days is expensive because you give up 2 percent for a very short period, and there are many such periods in a year. Annualized, forgoing 2/10 net 30 costs about 37 percent, far above most borrowing rates, which is why finance teams usually take the discount when they can.
How is the effective annual rate calculated?
Divide the discount rate by one minus the discount rate to get the cost over the extra credit period, then multiply by 365 divided by the number of extra days you would hold the cash (net days minus discount days). For 2/10 net 30 that is 0.02 divided by 0.98, times 365 divided by 20, which is about 37.24 percent.
Should I always take the discount?
Take it when the annualized cost of skipping it exceeds your cost of capital or what you could earn on the cash, which is almost always the case for typical terms. The exception is when paying early would create a genuine cash shortfall; then the comparison is against the cost of a short-term loan to bridge the gap.
What is the early payment discount formula?
Effective annual rate equals (discount / (1 - discount)) multiplied by (365 / (net days - discount days)), where the discount is written as a decimal. The first term is the cost over the credit period and the second annualizes it.
Official sources
- Cost of capital, interest and borrowing basics: US Securities and Exchange Commission, Investor.gov. As at 25 June 2026.
Reviewed by the CalculatorHub team, edited by James Graham, 25 June 2026. See our methodology. This is general information, not financial, tax, legal or investment advice.