Early Payment Discount
An early payment discount is a price reduction a supplier offers for paying before the due date. On 2/10 net 30 terms, you take 2% off by paying within 10 days; otherwise the full amount is due in 30.
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Formula
Annualized cost of skipping the discount = Discount % ÷ (100% − Discount %) × 365 ÷ (Full term days − Discount days)
Example: For 2/10 net 30: 2 ÷ 98 × 365 ÷ 20 = 37.2% a year. On a $10,000 invoice, paying by day 10 costs $9,800 and saves $200.
2/10 net 30 means take 2% off if you pay within 10 days; otherwise pay in full by day 30. Not taking the discount costs about 37.2% a year (2 ÷ 98 × 365 ÷ 20), so most companies with cash available should take it.
Definition
Early payment discounts are written as discount/days, net due date. 2/10 net 30 means a 2% discount for paying within 10 days of the invoice date, with the full amount due by day 30; 1/10 net 30 offers 1%. Skipping the discount means paying 2% more to keep the cash for an extra 20 days, which is an expensive way to borrow.
Why It Matters
Skipping a 2/10 Net 30 discount costs about 37% a year (2/98 × 365/20) for the extra 20 days of credit. Capturing these discounts is often the highest-return use of cash.
Examples
2/10 net 30 in practice
A $25,000 invoice dated May 1 on 2/10 net 30 terms can be paid at $24,500 by May 11, or in full at $25,000 by May 31. Paying early saves $500.
1/10 net 30
A 1% discount for paying 20 days early is worth 1 ÷ 99 × 365 ÷ 20 = 18.4% a year.
How Aequo AP Helps
Aequo AP captures invoices as they arrive and moves them through matching and approval quickly, which leaves time to pay within a discount window. The early payment discount calculator shows what your discounts are worth.
Start Free TrialFrequently Asked Questions
What does 2/10 net 30 mean?
It means you can take a 2% discount if you pay within 10 days of the invoice date. If you do not, the full amount is due within 30 days.
How do you calculate the value of a 2/10 net 30 discount?
Divide the discount by the remaining percentage and annualize it over the extra days: 2 ÷ 98 × 365 ÷ 20 = 37.2% a year.
Is it worth taking an early payment discount?
Usually, if you have the cash. A 2/10 net 30 discount is worth about 37% a year, far more than most savings rates or borrowing costs. If you would need to borrow at a higher rate to pay early, it may not be.
What does 1/10 net 30 mean?
A 1% discount for paying within 10 days, with the full amount due in 30 days. Skipping it costs about 18.4% a year.
Can you take the discount after 10 days?
Only if the supplier agrees. Taking a discount after the window has closed is called an unearned discount, and many suppliers will bill you for the difference.
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Early Discounts
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Glossary: net 30
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