Early Payment Discount Calculator
Find the annualised cost of skipping an early payment discount and whether borrowing to take it is worthwhile.
Quick answer
An early payment discount cuts the invoice if paid sooner. The annualized cost of skipping it is d / (1 - d) x 365 / days saved, where d is the discount rate. Compare it with your borrowing rate.
Early Payment Discount Calculator
Effective annual rate on short-term funds or credit lines.
Annual Cost (Simple)
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Annual Cost (Compounded)
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Discount Amount Saved
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Amount Paid If You Take It
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Net Benefit vs Borrowing
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Cost of Skipping the Discount at Other Discount Sizes
| Discount | Simple (annual) | Compounded (annual) | Better choice |
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Assumptions & method
- Simple annualised cost = d ÷ (1 − d) × 365 ÷ (net days − discount days), where d is the discount as a fraction.
- Compounded cost = (1 ÷ (1 − d))^(365 ÷ (net days − discount days)) − 1.
- The decision compares the compounded cost with your borrowing rate (treated as an effective annual rate).
- Net benefit = invoice × d − interest on the discounted amount borrowed for (net days − discount days), compounded at your borrowing rate.
- A 365-day year is used. Late payment fees, tax effects and supplier relationship value are not included.
Results are estimates based on the figures you enter. They are not guarantees and not financial advice.
Why early payment discounts are expensive credit
Terms such as 2/10 net 30 offer a discount if you pay by day 10, otherwise the full amount is due on day 30. Not taking the discount is effectively a loan from the supplier: you keep the cash for the extra 20 days, and the price of that loan is the discount you give up. Because the period is short, the annualised rate can be very high. This calculator converts the terms into a simple and a compounded annual cost, then compares it with what you would pay to borrow the money, so you can see which choice is cheaper.