Trade Credit Discount Cost CalculatorFree online financial calculator — instant results, no sign-up
Annualize the simple financing cost of declining an early-payment supplier discount.
Estimates only, based on the inputs and assumptions shown. This is not financial, investment, tax, or legal advice. Prices, rates and local rules may change; crypto scenarios do not predict returns. Confirm important decisions with a qualified professional.
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About the Trade Credit Discount Cost Calculator
The Trade Credit Discount Cost Calculator estimates the simple annualized financing cost of declining a supplier’s early-payment discount and paying at the full payment deadline instead. It shows the discounted payment amount, the discount forgone, and the annualized cost of keeping that payment cash for the additional days.
- Early-payment discount (%)
- The percentage reduction in the invoice amount available for payment by the discount deadline, entered as a percent (default: 2).
- Discount deadline (days)
- The number of days from the invoice’s payment-term starting date within which payment qualifies for the discount (default: 10 days).
- Full payment deadline (days)
- The number of days from the same payment-term starting date until the undiscounted invoice is due (default: 30 days).
- Invoice amount ($)
- The undiscounted invoice balance eligible for the early-payment discount, expressed in dollars (default: $10,000).
Formula and method
d = p / 100; E = I × (1 − d); F = I × d; Δt = t_f − t_d; C = (F / E) × (365 / Δt) × 100 = [d / (1 − d)] × [365 / (t_f − t_d)] × 100.
- pEarly-payment discount entered as a percentage.
- dEarly-payment discount expressed as a decimal.
- IUndiscounted invoice amount in dollars.
- EEarly payment amount in dollars.
- FDiscount forgone in dollars when the discount is declined.
- t_dDiscount deadline in days.
- t_fFull payment deadline in days.
- ΔtAdditional payment time gained by declining the discount, in days.
- CSimple annualized financing cost, expressed as a percentage using a 365-day year.
Convert the discount percentage to a decimal, then calculate the discounted payment and the discount forgone. Divide the discount forgone by the discounted payment to obtain the financing cost over the additional payment period, then multiply by 365 divided by that period’s days to annualize without compounding. With the default inputs, E = $10,000 × 0.98 = $9,800.00, F = $10,000 × 0.02 = $200.00, and Δt = 30 − 10 = 20 days. The simple annualized financing cost is ($200.00 / $9,800.00) × (365 / 20) × 100 = 37.24%, rounded to two decimal places.
Worked example
These are the calculator's starting values and the results it actually produces for them.
Inputs
- Early-payment discount2 %
- Discount deadline10 days
- Full payment deadline30 days
- Invoice amount10000 $
Results
- Early payment amount$9,800.00
- Discount forgone$200.00
- Simple annualized financing cost37.24%
How to use the Trade Credit Discount Cost Calculator
- 1Enter the supplier’s early-payment discount percentage; the default is 2%.
- 2Enter the discount deadline and full payment deadline using the same starting date; the defaults are 10 and 30 days.
- 3Enter the eligible invoice amount in dollars; the default is $10,000.
- 4Confirm that the invoice amount is positive, the discount is at least 0% and less than 100%, and the full payment deadline is later than the discount deadline.
- 5Read the early payment amount, discount forgone, and simple annualized financing cost, then compare the annualized cost with comparable short-term funding alternatives.
Reading your result
Early payment amount is the cash needed to settle the invoice by the discount deadline: $9,800.00 with the default inputs. Discount forgone is the additional amount paid if the discount is declined: $200.00. Simple annualized financing cost is the cost of retaining the $9,800.00 for the extra 20 days, scaled to a 365-day year without compounding: 37.24%. It is a comparison rate, not a claim that this invoice incurs a 37.24% dollar charge; the actual extra payment remains $200.00.
Limitations
The calculation assumes payment occurs at the discount deadline if the discount is taken, or at the full payment deadline if it is declined. It uses a 365-day year and simple annualization, not a compounded effective annual rate or a legally defined APR. It assumes the entire entered invoice amount qualifies for the discount and excludes taxes, fees, late-payment penalties, partial payments, and alternative discount tiers. The percentage cost does not depend on invoice size, but the dollar amounts do. Liquidity needs, borrowing availability, and supplier relationships also matter when deciding whether to take the discount.
Common questions
Why is the financing cost divided by $9,800.00 rather than $10,000?+
Taking the discount requires a $9,800.00 payment. Declining it lets the business retain that $9,800.00 for 20 additional days at a cost of $200.00, so the discounted payment is the financing base.
Why does a 2% discount produce a 37.24% annualized cost?+
The $200.00 cost applies to only 20 additional days of financing, not a full year. Dividing $200.00 by $9,800.00 and multiplying by 365/20 gives a simple annualized cost of 37.24%.
How do I enter supplier terms written as “2/10, net 30”?+
Enter 2 for the early-payment discount, 10 for the discount deadline, and 30 for the full payment deadline. These terms mean a 2% discount is available within 10 days; otherwise, the full invoice is due within 30 days.
Does a borrowing rate below 37.24% mean I should borrow to take the discount?+
It may be cheaper to borrow if the comparable all-in financing cost for the same 20-day period is below the $200.00 discount saved. Include loan fees, interest conventions, and repayment requirements rather than comparing headline annual rates alone.
Does the calculator save my information?+
Calculations run in your browser. While signed in, inputs and results are automatically recorded in account history; saving a result creates a separate saved record.
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Results are estimates for informational purposes and are not financial, medical or legal advice.