Glossary
What is an early payment discount?
By Tim White · Last updated
An early payment discount is a small price cut a supplier offers for paying ahead of the due date. It is written as terms like 2/10 net 30: 2 percent off if you pay within 10 days, otherwise the full amount by day 30. Taken across a year of invoices, those two-percents add up.
How the terms read
2/10 net 30 is the shorthand. The 2 is the discount percent, the 10 is the days to claim it, net 30 is the full due date. 1/15 net 45 works the same way with different numbers.
The catch: you have to see the date
The discount only helps if you catch it before day 10, which means knowing the invoice date the moment the bill lands. InvoiceJet reads the issue and due dates off each invoice and tracks them, with a Monday digest of what is coming up, so the window does not pass unnoticed.
A worked example
Acme Paper bills you 5,000 on terms of 2/10 net 30. Pay by day 10 and you send 4,900, keeping 100. The real question is what that 100 is worth. You are paying 20 days early to save 2 percent. Annualized, 2 percent over 20 days works out to roughly 37 percent. Almost no idle cash earns that, which is why finance teams take these discounts whenever the cash is there.
Common questions
Is 2/10 net 30 worth taking?
Usually. Two percent for paying 20 days early works out to a high annualized return, well above what the cash earns sitting in an account.
What is 1/10 net 30?
It means a 1 percent discount if you pay within 10 days, otherwise the full amount is due in 30. The first number is the discount, the second is the days to claim it, and net 30 is the final due date.
How do you calculate the annualized value of a 2/10 net 30 discount?
Divide the discount by the amount still owed (2 divided by 98), then multiply by 365 divided by the extra days you would otherwise hold the cash (20). That works out to roughly a 37 percent annualized return for paying early.
Sources
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