Early Payment Discount APR Calculator
Quantify how lucrative a supplier's early payment discount really is. Provide the discount percentage and how many days sooner you must remit cash. Optionally update the standard payment term if it is not net 30. The output annualizes the implied return so treasury can compare taking the discount against alternative cash uses or borrowing costs.
Model assumes on-time payments and no late fees. Confirm exact contract language and tax implications with your finance team.
Examples
- 2% discount paid 20 days early on net-30 terms ⇒ Effective cost of capital: 74.49% APR • Discount yield over 10 days: 2.04%
- 1.5% discount paid 15 days early on net-45 terms ⇒ Effective cost of capital: 18.53% APR • Discount yield over 30 days: 1.52%
FAQ
Why is the APR so high on small discounts?
Because you are accelerating cash only a few weeks early, the short holding period magnifies the annualized return. Even a 2% discount over 10 days annualizes to more than 70% APR.
How should I compare this APR to borrowing costs?
Match apples to apples: if your working-capital line costs 8% APR, any early payment discount that annualizes above 8% is financially attractive, assuming you are not starving critical cash needs.
What if the supplier offers multiple discount tiers?
Run the calculator for each tier. Choose the option with the highest APR that still fits your cash forecast and vendor relationship goals.
Additional Information
- APR assumes a 365-day year and reinvests each discount opportunity at the same effective yield.
- If suppliers extend net terms longer than 30 days, update the optional term field so the annualization reflects the true float being given up.
- Discount percentages over 5% are rare; double-check contract language to confirm whether the incentive applies to the invoice subtotal or just specific line items.