Early-Payment Discount Calculator

"2/10 net 30" costs more than you think

Offering an early-payment discount looks harmless. "Pay within 10 days and take 2% off, otherwise the full amount is due in 30" — the notation is 2/10 net 30, and 2% feels like a rounding error. It isn't. Annualize it and that small discount works out to roughly 37% APR. You're effectively borrowing your client's money at credit-card-plus rates, just to be paid 20 days sooner. This calculator reveals that true annualized cost so you can decide with eyes open.

Enter the discount percentage, the day by which the client must pay to earn it, and the full-payment term. The tool returns the effective annual rate.

Why the rate is so high

The math is simple once you see it. Giving up 2% to be paid on day 10 instead of day 30 means you're paying 2% for 20 days of speed. There are about 18 such 20-day windows in a year, so the annualized cost is far bigger than the headline 2%. Formally:

APR = (discount ÷ (100 − discount)) × (365 ÷ (net days − discount days))

For 2/10 net 30: (2 ÷ 98) × (365 ÷ 20) ≈ 37.2%. Bump the discount to 3% or shorten the window and the APR climbs higher still.

When it's still worth offering

A high implied rate doesn't automatically mean "never." It means "compare." An early-payment discount is worth offering when getting cash sooner is worth *more* to you than the rate it costs:

• You're carrying expensive debt. If your credit line is at 20% and the discount implies 37%, it's a bad trade. But if you're weighing it against a 40%+ merchant-cash-advance, faster cash might win.
• You genuinely need the liquidity. If waiting 30 days means missing payroll or your own bills, the "cost" of the discount can be cheaper than the alternative.
• The client responds to it. Some clients pay early only when incentivized. If the discount reliably pulls payment forward and cash flow is your constraint, it can pay for itself.

If none of those apply, you're usually better off tightening terms — shorter net windows, deposits, milestone billing — which speeds up payment without giving away margin. Compare the two with the Net-30 Cash-Flow Impact calculator.

How to read the result

The APR is a comparison tool. Line it up against the cost of your other financing options: a line of credit, a business card, or simply the return you'd earn with the cash in hand. If the discount's APR is higher than all of those and you don't have a liquidity emergency, skip it.

What this is

A general financing-cost estimate, not investment or lending advice. It annualizes the cost of a discount so you can compare it to other capital — the decision still depends on your specific cash-flow situation.