When a vendor writes "2/10 net 30" on an invoice, they are offering your business a quiet financing deal that most buyers never price out. This payment-terms calculator decodes that notation, shows you exactly how much you save by paying early, and converts the discount you give up by paying at net into an effective annual interest rate — so you can compare trade credit against a business line of credit, a credit card, or cash on hand.
Enter the invoice amount, the discount percentage, the discount window, and the net due date, and the result card shows the discounted payoff, the full amount due at net, the extra days of credit you are effectively borrowing, and the annualized cost of skipping the discount.
How to Use
- Enter the Invoice Amount — the total on the bill before any discount. This is the number you would owe on day 30 if you paid at net.
- Set the Early-Pay Discount as a percentage. On a "2/10 net 30" invoice this is 2; on "1/10 net 30" it is 1; on a net-60 invoice with no discount it is 0.
- Enter the Discount Window in days — the number of days from the invoice date during which the discount applies. On "2/10 net 30" this is 10.
- Enter the Net Due days — the final day by which the full amount must be paid. On "net 30" this is 30; on "net 45" or "net 60" it is 45 or 60.
- Optionally add your Alternative Borrowing APR — the rate you would actually pay to fund an early payment out of a business line of credit or card. The calculator compares it to the effective cost of skipping the discount and tells you which side wins.
The result card breaks out the discount dollars, the discounted payoff, the net due amount, the extra days of credit you take when you skip the discount, and the annualized interest rate those extra days cost you.
The Payment-Terms Formula
Trade-credit discount math is a simple two-step trick. First, the discount dollars:
Discount = Invoice × Discount% / 100
Second, the effective annual cost of skipping the discount. Think of it this way: by paying on day 30 instead of day 10, you are borrowing the discounted amount for (30 − 10) = 20 extra days, and paying the discount as interest on that loan. The textbook formula used by the Corporate Finance Institute and Investopedia is:
Effective annual cost = (d / (100 − d)) × (360 / (net − discount days)) × 100
Where d is the discount percentage, 100 − d is the amount you actually borrow (the discounted invoice), and 360/(net − discount days) annualizes the 20-day rate onto a banker's year. On 2/10 net 30 with a $10,000 invoice: the discount is $200, the early payoff is $9,800, the extra days are 20, and the effective annual cost is (2/98) × (360/20) × 100 = 36.7%. That is the hidden interest rate you pay your supplier by waiting until day 30 — and it is almost always far higher than a business line of credit.
If the discount is 0% or the discount window equals the net due date, the effective cost is 0 because there is no discount to give up.
Why the 360-Day Convention?
Business textbooks and most corporate finance courses annualize trade credit on a 360-day banker's year rather than 365. That is why 2/10 net 30 comes out to 36.7% here, not the 37.2% you would get with 365. The difference is small, but the 360-day number is the one your CFO will recognize and the one that matches supplier finance agreement sheets. We use 360 so the output lines up with what your accounting department expects.
Is It Worth It to Borrow to Take the Discount?
Compare the effective annual cost on this page to the rate on your cheapest source of working capital:
- Business line of credit — usually 8%–15% APR for an established company.
- Business credit card — 20%–28% if carried as revolving debt.
- Vendor trade credit itself — 36.7% on 2/10 net 30, 18.2% on 1/10 net 30, 55.7% on 3/10 net 30.
If your line of credit costs 10% and the discount costs 36.7%, you should borrow at 10% and pay early every time — you earn a 26.7% spread. If your only funding source is a 28% credit card and the discount costs 18.2%, you are usually better off paying at net. The Alternative Borrowing APR box on this page does that comparison for you and prints a one-line recommendation.
Examples
Example 1 — The textbook 2/10 net 30. A $10,000 invoice arrives on a Monday with terms 2/10 net 30. Pay by the following Friday (day 10) and the check is $9,800 — you keep $200. Pay on day 30 and the full $10,000 is due. Skipping the discount means borrowing $9,800 for 20 days at a cost of $200, which annualizes to 36.7%. If your line of credit is 10%, taking the discount is one of the highest-returning moves your company can make.
Example 2 — A large vendor bill. A manufacturer ships $1,000,000 of raw material on terms 1/10 net 45. The discount is $10,000 and the early payoff is $990,000. The extra credit you take by waiting to day 45 is 35 days, and the effective annual cost is (1/99) × (360/35) × 100 = 10.4%. That is cheap trade credit — comparable to a bank line — so unless your cash is extremely tight, taking the discount is still worth it.
Example 3 — No discount at all. A monthly software subscription invoice for $495 on net-30 terms has no early-pay discount. The calculator shows $0 off, $495 due either early or at net, and a 0% effective annual cost. That is pure free credit — you should pay on day 30, not before, and keep the cash in your operating account.
FAQ
What does "2/10 net 30" mean?
It is shorthand for supplier payment terms: a 2% discount if the invoice is paid within 10 days, otherwise the full amount is due 30 days after the invoice date. Read it as "discount / discount-window, net net-due." Common variants are 1/10 net 30 (1% off in 10 days), 3/10 net 30 (3% off in 10 days), and plain net 30 (no discount, due in 30 days).
Should I always take an early-payment discount?
Usually yes, because the implied annual cost of skipping the discount is very high — 2/10 net 30 works out to about 36.7% — far above the cost of a business line of credit. The exception is when your only way to fund the early payment is an expensive credit card or you genuinely cannot make payroll otherwise. Enter your alternative borrowing APR in this calculator and let the recommendation line do the math.
How is the effective annual cost of trade credit calculated?
Use the formula (discount% / (100 − discount%)) × (360 / (net days − discount days)) × 100. It treats the discount you give up as interest on a short loan that lasts from the discount deadline to the net due date, then annualizes that interest rate on a 360-day banker's year.
Is net 30 free money?
Net-30 terms with no discount are essentially free, interest-free short-term credit — you hold onto your cash for 30 days and owe exactly the invoiced amount. Net-30 terms that include an early-pay discount are not free: skipping the discount carries a steep hidden interest rate. This calculator separates the two cases for you.
What is a good payment term for a small business?
Suppliers often offer net 30 by default, and buyers who are tight on cash may ask for net 45 or net 60. On the buying side, the best terms are the ones with a deep early-pay discount you can actually afford to take. On the selling side, net-30 with a 1%–2% early-pay discount balances cash flow with customer goodwill.
What happens if I pay after the net due date?
You owe late fees the invoice allows for, typically 1.5%–2% per month on the overdue balance, and you risk the supplier putting your account on hold or requiring pre-payment on future orders. The calculator does not model late fees; it prices only the trade-credit discount decision.
Disclaimer
This payment-terms calculator is provided for informational purposes only and does not constitute financial, accounting, tax, or legal advice. Effective-cost figures use the standard 360-day trade-credit convention and the inputs you enter; actual supplier terms, late fees, dispute rights, and borrowing costs vary by contract, lender, and jurisdiction. Always confirm the exact discount window, net due date, and late-fee clause on the original invoice, and consult your accountant or a qualified financial advisor before making a payment decision.