Cash Discount Calculator
Evaluate commercial cash discounts for early invoice payment (e.g., 2/10 Net 30). Calculate money saved by paying early and the effective annual percentage rate (APR) of forfeiting the discount.
How it works
Discounted amount = invoice amount × (1 − discount rate ÷ 100). Annualized APR = [discount % ÷ (100 − discount %)] × (365 ÷ [net days − discount days]) × 100. On a 10,000 invoice with 2/10 Net 30 terms, paying within 10 days saves 200 (paying 9,800), equivalent to an annualized return of 37.24%.
Questions
What do terms like 2/10 Net 30 mean?
The buyer receives a 2% discount if payment is settled within 10 days; otherwise, the full invoiced amount is due within 30 days.
Why is the annualized cost of skipping an early discount so high?
Giving up a 2% discount to keep cash for only 20 extra days works out to about 37% a year when scaled to a full year. The figure is not compounded.
Is early payment discount applied before or after sales tax?
Commercial standards vary by local tax jurisdiction. Commonly, prompt payment discounts apply to pre-tax goods value unless stated otherwise.
Results are estimates for planning. They are not tax, legal or financial advice.
Find another tool
No tool found. Try a shorter word.