Early Payment Discount Calculator
Enter an invoice amount and terms such as 2/10 Net 30 to see the discount, what the buyer pays, and what the discount costs as an annual rate. On a $10,000 invoice, 2/10 Net 30 means paying $9,800 by day 10 instead of $10,000 by day 30. Skipping that discount costs the buyer 37.24% a year on the cash paid early, or 44.59% if you compound it.
Best for: Sellers deciding whether to offer 2/10 Net 30 terms, and buyers deciding whether paying early beats their cost of borrowing.
Discount Amount
$200.00
Pay This Amount
$9,800.00
Days Accelerated
20
Annualized Discount (face value)
36.50%
Cost of skipping (simple, on cash paid)
37.24%
Effective annual rate (compounded)
44.59%
How to read the three rates: face value = discount % x 365 / days accelerated. Simple cost = d / (1 - d) x 365 / days, the rate on the cash actually paid early. Effective annual rate compounds that return over a year. All use a 365-day year and are implied rates for comparison, not a lender's APR.
Three ways to annualize an early payment discount
The discount is a return for paying a set number of days early. Turning it into a yearly rate lets you compare it with a loan or a savings rate, but the answer depends on what you divide by and whether you compound. This calculator shows all three so you can match the basis your accountant or textbook uses.
| Basis | Formula | 2/10 Net 30 | Use it when |
|---|---|---|---|
| Face value | d x 365 / n | 36.50% | You want a quick, round figure |
| Simple, on cash paid | d / (1 - d) x 365 / n | 37.24% | Comparing with a simple-interest credit line |
| Compounded | (1 + d / (1 - d))^(365 / n) - 1 | 44.59% | Comparing with an effective annual rate or yield |
d is the discount as a decimal (0.02) and n is the full term minus the discount window (30 - 10 = 20 days). Some finance textbooks use a 360-day year: the OpenStax Principles of Finance example gives 36.73% for 2/10 Net 30 on that basis.
Worked example: 2/10 Net 30 on a $10,000 invoice
- Discount: $10,000 x 2% = $200. Paying by day 10 costs $9,800.
- Days accelerated: 30 - 10 = 20 days.
- Return on the cash paid early: $200 / $9,800 = 2.0408% for 20 days.
- Simple annual cost: 2.0408% x 365 / 20 = 37.24%.
- Compounded: 1.020408^18.25 - 1 = 44.59%, because there are 18.25 twenty-day periods in a year.
Put another way, a buyer who waits until day 30 is borrowing $9,800 from the seller for 20 days and paying $200 for it. If the buyer instead drew $9,800 from a credit line at 12% a year for those 20 days, the interest would be $64.44 (9,800 x 0.12 x 20 / 365). Taking the discount leaves them $135.56 better off.
Common discount terms compared
Short discount windows and long net terms make a discount cheap; a big percentage over a short gap makes it expensive. 2/10 Net 60 costs a seller less than half as much as 2/10 Net 30, because the cash only arrives 50 days early instead of 20.
| Terms | Face value | Simple, on cash paid | Compounded |
|---|---|---|---|
| 1/10 Net 30 | 18.25% | 18.43% | 20.13% |
| 2/10 Net 30 | 36.50% | 37.24% | 44.59% |
| 2/10 Net 60 | 14.60% | 14.90% | 15.89% |
| 3/10 Net 60 | 21.90% | 22.58% | 24.90% |
| 1/15 Net 45 | 12.17% | 12.29% | 13.01% |
All rates on a 365-day year, calculated with the same functions as the calculator above.
Should a seller offer an early payment discount?
Offer one when cash today is worth more to you than the discount. On 2/10 Net 30 you give up 2% of revenue, $200 on every $10,000, to be paid 20 days sooner. If your margin is 15%, that discount takes more than an eighth of your profit on the job. It is worth it if it saves you overdraft fees, lets you pay your own suppliers on time, or gets a slow payer to settle within the month. It is not worth it if your clients already pay on time, because you would be paying them for something they were going to do anyway.
Write the terms on the invoice in full ("2% discount if paid within 10 days of the invoice date; otherwise the full amount is due in 30 days") so there is no argument about when the window closes. Our payment terms guide and when to offer discounts cover the wording and the trade-offs in more depth.
Early payment terms on an InvoiceQuickly invoice
InvoiceQuickly applies one discount percentage per invoice up front, before tax, so it suits an agreed price reduction rather than a conditional early payment discount. For 2/10 Net 30, bill the full amount and put the discount terms in the invoice's terms field. If the client pays $9,800 inside the window, record that payment; the invoice then shows $200 still open, which you can close with a credit note on the Pro plan. See features and pricing.
When this isn't the right fit
You are setting volume or bulk pricing. That is a pricing decision, not a payment-timing one; use the profit margin calculator instead.
Your margins are thin and clients already pay within terms. Offering 2% to people who pay on day 25 anyway is a straight loss; tighten your terms or reminders instead.
You are comparing supply-chain finance or invoice factoring offers. Those carry fees, advance rates and recourse terms this calculator does not model; compare the provider's total cost in writing.
Frequently asked questions
What does 2/10 Net 30 mean?
The buyer may deduct 2% if they pay within 10 days of the invoice date; otherwise the full amount is due within 30 days. On a $10,000 invoice that means paying $9,800 by day 10 or $10,000 by day 30.
How do I calculate the annualized cost of an early payment discount?
Divide the discount by the amount you would actually pay, then scale it to a year: d / (1 - d) x 365 / (full term - discount window). For 2/10 Net 30 that is 2 / 98 x 365 / 20 = 37.24%. Compounding the same 20-day return over a year gives 44.59%.
Why do calculators show 36.5%, 36.73% or 37.24% for 2/10 Net 30?
They use different bases. 36.5% divides the 2% by the invoice's face value. 37.24% divides it by the $98 actually paid early, on a 365-day year. 36.73% is the same discounted-cash formula on a 360-day year, which some finance textbooks use. All three are simple, uncompounded rates.
Is the annualized discount rate an APR?
Not in the legal sense. No loan is made and no lender has to disclose anything. The figure is an implied annual rate that lets you compare the discount with what borrowing or holding cash would cost you.
Should I offer early payment discounts as a seller?
Only if getting paid sooner is worth more to you than the discount. On 2/10 Net 30 you give up 2% of the invoice to receive the cash 20 days earlier, which is like borrowing at about 37% a year. That can make sense if it lets you avoid an overdraft or a late supplier payment, but it is an expensive habit for a business with steady cash.
What if a client takes the discount but pays after the discount window?
Your terms decide. If the invoice says the discount applies only to payment received within 10 days, the rest is still owed. Say so on the invoice before it is paid, then bill or chase the shortfall. Many sellers allow a day or two of grace for bank transfer timing; whatever you choose, apply it consistently.
What is the difference between 2/10 Net 30 and 1/15 Net 45?
2/10 Net 30 is far more generous. It pays 2% to get cash 20 days early, 37.24% a year on the discounted-cash basis. 1/15 Net 45 pays 1% to get cash 30 days early, 12.29% a year. Enter both in the calculator to see the difference on your invoice amount.
Related Tools & Resources
- All free invoicing tools: calculators and generators that run in your browser
- 2/10 Net 30: the term defined
- Invoice discounts guide: early payment, volume and loyalty discounts on invoices
- Net 30 payment terms explained: how the clock and the due date work
- Late fee calculator: interest when an invoice is paid late
- Invoice number generator: a consistent numbering format