Early Payment Discount Calculator
Evaluate the cost-benefit analysis of offering early payment discounts to encourage faster payments
Understanding Early Payment Discounts
Optimize your trade credit terms
Early payment discounts are incentives offered to customers who pay their invoices before the standard payment terms. They can help improve cash flow and reduce the cost of carrying accounts receivable.
Common Discount Types:
- Standard (e.g., 2/10 Net 30)
- Custom (e.g., 1% for payment within 10 days)
- Non-bucketed (linear decrease from day 1 to net term)
The annualized cost represents the effective interest rate you're paying to receive payment early. For example, a 2% discount for payment 20 days early (2/10 Net 30) has an annualized cost of about 36%. This helps you compare the cost of offering discounts to other financing options. A lower annualized cost means a more efficient use of your working capital.
Best Practices:
- Align discount periods with your cash flow needs and customer payment patterns
- Consider your cost of capital when setting discount rates
- Monitor the impact on profit margins and adjust rates accordingly
Calculate Your Discount
Enter your invoice details to analyze early payment discounts