Early payment discount and 2/10 net 30 calculator

In 2/10 net 30 the first number is the discount percentage, the second is the last day it can be taken, and the third is the day the full amount falls due. Declining the discount is a borrowing decision: you keep the money for the days between those two dates, and the discount you gave up is what that credit cost. The formula is the discount divided by one minus the discount, multiplied by the year divided by the credit period. For 2/10 net 30 on a 365 day year, 0.02 divided by 0.98 is 2.0408 percent and 365 divided by 20 is 18.25, giving 37.24 percent.

The detail separating a correct answer from a nearly correct one is that first denominator. It is one minus the discount, not one. The 2 percent is a share of the face amount, but the credit is extended on the amount you would actually have paid, $9,800 on a $10,000 invoice. Dividing by 0.98 rather than by 1 moves 2/10 net 30 from 36.50 percent to 37.24 percent, and it is worth 1.7 points at a 3 percent discount. It is the commonest error in spreadsheets built from memory.

The second detail is the year. Some published versions divide 360 by the credit period and some divide 365. AccountingTools' cost of credit article uses 360 and works 2/15 net 40 to 29.4 percent; the same terms on 365 days come to 29.80 percent. On 2/10 net 30 the two give 36.73 percent and 37.24 percent. Neither is wrong, but a page that hides its convention cannot be reconciled against one that used the other, so the Early Payment Discount to APR Calculator makes the basis a visible selector.

Terms with no discount are where the arithmetic says do nothing. Net 30, net 60 and net 90 offer nothing for paying early, so that trade credit costs zero and every day of it is free. Paying a net 60 invoice on day 12 is a donation of 48 days of your own working capital to a supplier who did not ask for it. The calculator returns Free rather than a misleading 0.00 percent.

There are two defensible annual rates here and most calculators publish only the first. The nominal figure multiplies the period cost by the periods in a year: 2.0408 percent times 18.25 is 37.24 percent. The effective annual rate compounds instead, so one plus 0.020408 raised to the power 18.25, minus one, is 44.59 percent. Both come from the same two inputs and they are 7.34 points apart.

Which is right depends on whether the decision repeats. For a single invoice funded by a draw on a line of credit charging simple interest, the nominal figure is the correct comparison and not an approximation of anything. Set the discount equal to simple interest on the discounted amount over the credit period, solve for the rate, and you get the nominal formula exactly, which is why the break-even borrowing rate here is always identical to the nominal number. When the same supplier bills you monthly and you skip the discount every time, the charge recurs 18.25 times a year and the effective rate is the honest one.

The gap widens fast with the discount. At 1/10 net 30 the nominal cost is 18.43 percent and the effective is 20.13 percent, 1.7 points apart. At 3/10 net 30 the nominal is 56.44 percent and the effective is 74.35 percent, 17.9 points apart. Any page printing one figure for 3/10 net 30 is off by more than the whole cost of a bank loan, and none of them says which way.

The window matters more than the discount, and that is the counterintuitive part. Two percent over the 20 days of 2/10 net 30 annualizes to 37.24 percent. The identical 2 percent over the 50 days of 2/10 net 60 annualizes to 14.90 percent, because you are paid the same amount for two and a half times the waiting. A supplier who lengthens the net date without touching the discount has quietly made it far less attractive.

The test is one comparison: your own annual cost of capital against the nominal annualized cost of the terms. If your money costs less than the terms, take the discount, borrowing if you have to. If it costs more, pay on the net date and keep the cash. The Early Payment Discount to APR Calculator prints the break-even rate directly.

At normal US business borrowing rates, 2/10 net 30 is a take. The Federal Reserve's H.15 release of 4 September 2026 puts the bank prime loan rate at 6.75 percent. An SBA 7(a) variable rate loan is priced as a permitted base rate plus a maximum spread set by loan size, so its ceiling sits a few points above prime rather than anywhere near 37 percent, and a business card revolving in the low twenties is still well below the break-even. On a $10,000 invoice, borrowing the $9,800 for 20 days at 6.75 percent costs $36.25 against a $200 discount, a net gain of $163.75.

The answers that go the other way exist and are worth naming. A merchant cash advance is priced with a factor rate, which contains no time in it at all, so the same 1.30 factor can annualize anywhere from roughly 37 percent to well over 100 percent depending on how fast the holdback clears it. Funding a 2 percent discount from an advance can easily be a loss, and the cost has to be solved from the actual payment stream rather than read off a term sheet.

There is a case where taking the discount is right and doing it is still wrong, and no calculator can see it. If paying on day 10 means a payroll run clears late, or a rolling reserve is holding cash you assumed you had, the liquidity constraint beats the rate comparison. A missed payroll is not priced in basis points.

Run the same terms from the supplier's side and the numbers change, because the denominator changes. A seller offering 2/10 net 30 is not paid 20 days sooner. They are paid however much sooner than their customers pay today, and US business to business invoices are commonly settled after the net date. If customers pay at day 45 now, the discount buys 35 days, so the break-even cost of capital is 0.02 divided by 0.98, multiplied by 365 divided by 35, which is 21.28 percent a year rather than 37.24.

Put dollars on it. A supplier with $1,200,000 of annual credit sales, customers paying at day 45, 40 percent take-up and a 6.75 percent cost of capital hands over $9,600 of discount a year. Days sales outstanding falls from 45 to 31, releasing $45,106.85 of cash once, worth $3,044.71 a year at 6.75 percent. Net, the program costs $6,555.29 a year. The released cash is computed on sales net of the discount, because an invoice that clears early clears at the discounted amount.

Take-up is where most seller-side analysis goes astray. It is the number everybody wants to forecast, and it cannot change the answer. Take-up multiplies the discount handed over and the cash released by exactly the same factor, so it divides straight out of the break-even. Higher take-up on a program that loses money simply loses more. There is no share of customers at which a losing early payment discount starts to pay for itself.

That is not an argument against ever offering one, but for pricing it against the alternatives, all of which are cheaper per dollar of acceleration. Tightening dunning costs nothing. So does charging a late fee. Offering a bank rail so customers can pay the moment they approve an invoice costs a few dollars. A 2 percent discount is the most expensive way a US business can buy 35 days.

This is a payments site, so the connection nobody else makes belongs here. If you want the discount but not the cash outflow, one route is to pay the supplier on a business card through a bill pay service and settle the statement later. Melio's published US pricing, read 5 September 2026, charges 2.9 percent to pay a business bill by card. On a $10,000 invoice at 2/10 net 30 the card charge is $9,800 and the fee is $284.20, against a discount worth $200. The fee alone eats the discount and $84.20 more.

Rewards and float are what rescue it, and both are arithmetic rather than opinion. A 1.5 percent rewards rate on the $9,800 charge is $147.00. If the statement falls due 25 days after a day 10 charge, the cash leaves on day 35 rather than day 30, which is five days of float on $10,084.20 worth $9.32 at 6.75 percent. Add them up and the card route is $72.12 ahead. The Early Payment Discount to APR Calculator solves both flip points: at a 2.9 percent fee you need a 0.76 percent rewards rate to break even, and at a 1.5 percent rewards rate you can pay a fee of up to 3.64 percent. Carry the balance past the statement date and card interest swamps every figure above.

The same question from the collections side has a starker answer. If you are weighing a 2 percent discount because you want the money sooner, price it against a faster payment rail. On a $10,000 invoice the discount costs $200. PayPal charges 1 percent capped at $10.00 for Pay by Bank on an invoice, and Helcim charges 0.5 percent plus 25 cents on a bank payment, capped at $6, so the bank rail collects that invoice for $6 to $10 and every customer can use it. Cards run the other way at this ticket size: PayPal charges 3.49 percent plus 49 cents through PayPal Checkout and 2.99 percent plus 49 cents for a standard card, which is $349.49 or $299.49, more than the discount costs, though on small invoices the fixed fee flips it back. Work out your own crossover with the ACH against credit card fee calculator, and if the real problem is the whole cycle rather than one invoice, the cash conversion cycle calculator frames it.