When vendors offer "2/10 net 30" terms, they're letting you take 2% off if you pay in 10 days instead of 30. This calculator reveals the true annualized value of early payment discounts—often 20-50% APR savings.
How This Calculator Works
This calculator analyzes early payment discounts:
- Invoice Amount: Total bill amount
- Discount Percentage: Discount offered for early payment
- Discount Days: Days to pay to get the discount
- Net Days: Standard payment due date
- Effective APR: Annualized value of taking the discount
- Savings: Dollar amount saved
The Formula Explained
Effective APR = (Discount% / (100 - Discount%)) × (365 / (Net Days - Discount Days))
Example: 2/10 net 30 terms APR = (2 / 98) × (365 / 20) = 0.0204 × 18.25 = 37.2% APR
Taking 2% to pay 20 days early = 37.2% annualized return on your money!
Step-by-Step Example
Analyzing Common Payment Terms
| Terms | Discount | Days Early | Effective APR |
| 1/10 net 30 | 1% | 20 days | 18.4% |
| 2/10 net 30 | 2% | 20 days | 37.2% |
| 3/10 net 45 | 3% | 35 days | 32.3% |
| 2/15 net 60 | 2% | 45 days | 16.6% |
A 2% discount paid 20 days early is worth 37% annually!
Frequently Asked Questions
What does "2/10 net 30" mean?
"2/10 net 30" means you get 2% off if you pay within 10 days; otherwise, the full amount is due in 30 days. The format is: Discount% / Days to Get Discount, Net Days. It's a standard trade credit term that incentivizes early payment.
Why do vendors offer early payment discounts?
Vendors offer discounts to accelerate cash flow—getting money faster improves their liquidity and reduces collection risk. The discount is essentially the price they're willing to pay for cash sooner. For vendors with high financing costs, early payment is worth the discount.
Is it worth taking early payment discounts?
Usually, yes—emphatically. Most early payment discounts translate to 15-40% annualized returns. If you have cash or can borrow at lower rates (credit line at 8%), taking the discount is like earning 37% on your money. Only skip if you face severe cash constraints.
How do I calculate the effective annual rate?
APR = (Discount% / (100 - Discount%)) × (365 / Days Early)
Where Days Early = Net Days - Discount Days. A 2% discount for paying 20 days early: (2/98) × (365/20) = 37.2% effective annual rate. This is the return you "earn" by paying early.
Should my business offer early payment discounts?
If you need cash faster and have collection issues, offering discounts can help. But calculate the cost—2/10 net 30 = paying 37% annually for faster cash. If you can borrow cheaper, that's better. Consider discounts only when early cash is strategically valuable.
What if I can't afford to pay early?
If cash flow prevents early payment, you're giving up a high-return opportunity. Consider: (1) Using a credit line at lower rates to fund early payments, (2) Prioritizing which vendors get early payment (highest discount APR first), (3) Negotiating better terms with vendors.
How do early payment discounts compare to borrowing?
If your credit line costs 8% and the discount is worth 37%, borrow to take the discount—you profit the difference (29%). Compare effective APR of discount to your borrowing cost. Taking discounts funded by low-cost debt is sharp financial management.
Can I negotiate early payment terms with vendors?
Absolutely—many vendors will offer discounts if asked, especially for large or reliable customers. If they don't offer terms, propose them: "Would you take 2% off for payment within 10 days?" Cash-strapped vendors often accept. Your cash flow advantage is worth their discount.
Key Points to Remember
- Discounts are huge in APR terms: 2% off for paying 20 days early ≈ 37% annually
- Almost always worth taking: Unless you have no cash and expensive borrowing
- Compare to borrowing cost: If discount APR > borrowing cost, borrow and take it
- Prioritize highest APR discounts: Not all discount terms are equal
- Ask for discounts: Vendors often offer if you request