Early Payment Discount Calculator

An early payment discount is a financing decision in disguise: pay early and keep the discount, or keep the cash and pay an implied interest rate for it. Every figure below was computed with the calculator above.

Reading payment terms: 2/10 net 30 and its relatives

Terms such as 2/10 net 30, also written 2/10, n/30, pack three numbers: a 2% discount, a 10-day discount period, and a 30-day credit period after which the full amount is due. 1/10 net 30 halves the discount, 2/10 net 60 stretches the credit period, and plain net 30 offers no discount at all. Days normally run from the invoice date.

• Cash discount: a reduction for paying within the discount period, also called a prompt payment or early payment discount.
• Trade discount: a reduction from list price for volume or for resellers, given whenever you pay.
• Chain discount: successive trade discounts such as 20/10, applied one after another.
• EOM: end of month; the discount period starts at the end of the invoice month.
• ROG: receipt of goods; the period starts when the goods arrive.
• Prox: payment due by a set day of the following month, as in 2/10 prox.
• Net price factor: the share of list price you pay after trade discounts, 0.72 for 20/10.

The early payment discount formulas

Here d is the discount as a decimal. Dividing by 1 − d matters because skipping the discount is a loan of the discounted amount, not of the full invoice. The simple rate compares with an APR; the compounded rate assumes you skip the discount on every invoice all year, so it compares with an effective annual rate. Replace 365 with 360 for the banker's year used in the Treasury formula.

Worked example: $10,000 on 2/10 net 30

• Discount: $10,000 × 2% = $200.00, so you pay $9,800.00 by day 10.
• Cost per period: 2 ÷ 98 = 2.0408% for 20 extra days of credit.
• Annualized: 2.0408% × 365 ÷ 20 = 37.24% (36.73% on a 360-day year).
• Compounded: (1.020408)^18.25 − 1 = 44.59%.
• Borrowing: $9,800 for 20 days at a 10% APR costs $53.70, so taking the discount nets $146.30.

The break-even borrowing rate is 37.24%. Any cheaper funding leaves the discount ahead, even a 29.99% card balance repaid within the 20 days: $161.04 of interest against $200.

Worked example: trade discounts, then 3/15 net 45

A distributor lists an item at $4,800 with trade discounts of 25/10 and terms of 3/15 net 45. Switch the calculator to "List price" and tap the 3/15 net 45 preset to reproduce it.

• First trade discount: 25% of $4,800 = $1,200, leaving $3,600.
• Second trade discount: 10% of $3,600 = $360, leaving a net invoice of $3,240.00 (a single equivalent discount of 32.5%).
• Cash discount: 3% of $3,240 = $97.20, so you pay $3,142.80 by day 15.
• Cost of skipping: 3 ÷ 97 × 365 ÷ 30 = 37.63% (44.86% compounded).
• Borrowing $3,142.80 for 30 days at a 10% APR costs $25.83, leaving $71.37.

Adding the trade discounts to 35% would understate the price at $3,120 instead of $3,240. The cash discount always comes after the trade discounts, on the net invoice.

Annualized cost of common payment terms

Computed for a $10,000 invoice. The last column is what you keep after borrowing the early payment at a 10% APR; a negative figure means skipping the discount is cheaper at that rate.

The gap between the two dates drives the rate as much as the discount does. 1/15 net 30 (24.58%) costs more to skip than 2/10 net 60 (14.90%) even though its discount is half the size, because it buys only 15 extra days.

Should you borrow to take the discount?

Compare your borrowing APR with the simple annualized rate. For 2/10 net 30 on $10,000, this is the interest on $9,800 for 20 days and what remains of the $200 discount:

The answer flips when the gap is long and the discount small. On 1/10 net 60 the discount is worth 7.37% a year; borrowing $9,900 for 50 days at 24% costs $325.48 against a $100 discount, a net loss of $225.48. Idle cash is the cheapest funding of all: if it would earn 4% for those 20 days, paying early gives up $21.48 of interest to collect $200.

Paying late changes the math

Stretching past the net date lowers the implied rate, because the same 2% buys more days. For 2/10 net 30 paid on later days:

The arithmetic leaves out late fees, lost discounts on future orders and damage to your standing with the supplier, which usually outweigh the few points of rate gained. A federal agency that takes a discount after the deadline owes an interest penalty under 5 CFR 1315.7.

Trade discounts, chain discounts and cash discounts

IRS Publication 538 draws the line clearly. A trade discount is allowed regardless of when payment is made, generally for volume, and must reduce the cost of inventory. A cash discount is a reduction for paying within a prescribed time, and you may either deduct cash discounts or include them in income, as long as you treat them the same way every year. Chain discounts multiply rather than add, as the net price factors on a $1,000 list price show:

In retail, "cash discount" has a second meaning: a lower price for paying by cash or check instead of a card. Federal law (15 U.S.C. 1666f) bars card issuers from prohibiting such discounts, and they are not finance charges when offered to all buyers and clearly disclosed.

Partial payments and the seller's side

Many suppliers credit a partial payment made inside the discount period at its grossed-up value, payment ÷ (1 − d). On a $5,000 invoice with 2/10 net 30, paying $2,940 by day 10 earns credit for $3,000, leaving $2,000 due by day 30. Confirm the supplier allows it before relying on it.

For the seller, a discount is expensive financing. A business with $600,000 of annual credit sales, where 40% of customers take 2/10 net 30, gives up $4,800 a year to receive $235,200 twenty days sooner; borrowing that sum for 20 days at a 10% APR would cost about $1,288.77. Discounts can still pay off when they cut late payments, collection work or bad debts, but on financing cost alone a line of credit usually wins.

How federal agencies decide

Federal buyers follow the Prompt Payment rules. Under 5 CFR 1315.7 an agency may take an offered discount when it is economically justified under the discount formula in the Treasury Financial Manual, and only after it has accepted the goods or services; the discount period runs from the invoice date. The Bureau of the Fiscal Service's discount calculator states the test plainly: if the effective annual discount rate is larger than the current value of funds rate, take the discount and pay early. That rate is 4.00% for calendar 2026 (5.00% in 2025).

Treasury's formula uses a 360-day year: 1/10 net 30 gives 0.01 × 360 ÷ (0.99 × 20) = 18.18%, far above 4.00%, so the agency pays early. FAR 52.232-8 adds the mechanics: payment counts as made on the date on the check or the specified electronic payment date, and a discount date on a weekend or legal holiday moves to the next business day.

How to use this calculator

1. Choose the starting point: the invoice amount, or a list price with up to three chain trade discounts.
2. Enter the terms (discount %, discount days, net days) or tap a preset such as 2/10 net 30.
3. Add your borrowing APR for a take-or-skip verdict, and an invoice date to see the deadlines.
4. Pick 365 or 360 days to match your lender or the Treasury method.

Accounts payable teams, controllers and small business owners use it to decide which invoices to pay early, sellers use it to price their own terms, and students use it to check business math homework.

What changes the result, and tips

• The discount rate: doubling it roughly doubles the annual cost.
• The gap between the dates: the shorter it is, the higher the rate.
• The day count: a 360-day year turns 37.24% into 36.73%.
• When payment counts as made: check date, transfer date or receipt, as the terms define it.
• Freight and taxes: if the terms exclude them, discount only the goods. On $10,000 of goods plus $400 freight, 2% is $200, not $208, so you pay $10,200.

Pay on the last discount day rather than earlier, since paying on day 2 earns nothing extra. When cash is short, rank invoices by annualized rate and pay the highest first, and allow for bank processing time so a transfer started on day 10 still counts.

Limitations and related calculators

The calculator assumes calendar days from the invoice date and a discount on the whole invoice. It does not model EOM, ROG or prox dates directly, freight or tax exclusions, minimum order rules or late fees, and its rates are decision aids, not accounting entries.

For percent-off prices use the Discount Calculator. To price the credit line you would draw on, use the Line of Credit Calculator, and check a loan's true cost with fees in the APR Calculator. The Effective Annual Rate Calculator converts nominal rates, the Simple Interest Calculator prices short borrowing, and the Business Loan Calculator covers term debt. Sellers can check pricing with the Markup Calculator and payment costs with the PayPal Fee Calculator.

Sources

• Electronic Code of Federal Regulations, 5 CFR 1315.7, Discounts (Prompt Payment).
• Bureau of the Fiscal Service, Formula and Calculator for Discounts (last updated February 26, 2026).
• Bureau of the Fiscal Service, Current Value of Funds Rate (4.00% for January 1 to December 31, 2026).
• Treasury Office of Inspector General, OIG-13-CA-008 (June 10, 2013), reproducing the Effective Annual Discount Rate formula of Treasury Financial Manual section 6-8040.40 and its 360-day year.
• Acquisition.gov, FAR 52.232-8, Discounts for Prompt Payment.
• Internal Revenue Service, Publication 538, Accounting Periods and Methods (Inventories, Cost method, Discounts).
• U.S. Government Publishing Office, 15 U.S.C. 1666f, cash discounts for payment by cash or check.
• The annualized-cost, compounding and interest formulas are standard finance mathematics applied to your inputs.