Result
Effective rate of skipping the discount
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
Discount amount = invoice amount × discount percent ÷ 100. Effective rate = (discount percent ÷ (100 − discount percent)) × (365 ÷ (full term − discount period)) × 100% — the classic trade credit cost formula for terms like 'X% off if paid within N days, otherwise the full amount in M days'.
This rate shows what annualized return a buyer effectively gives up by not paying early and skipping the discount: in effect, the buyer is borrowing money for the gap between the discount period and the full term at a cost equal to this effective rate.
Typical terms like '2/10 net 30' produce an effective rate around 35–45% annualized — noticeably higher than almost any bank loan. That makes paying an invoice early to capture the discount one of the best short-term uses of a company's spare cash, if it has any.