Cash discount vs funding cost
A supplier offers "2/10 net 60" — 2% off if you pay in 10 days instead of 60. That small discount is often worth a lot: this tool converts it into an annualised yield, compares it with your company's own cost of capital, and tells you the net saving of paying early.
The offer
Verdict
Discount amount
2% of the order
Annualised yield on early payment
2% / 98% × 365 / 50 days
Cost of funding this payment
at 4%/yr for 50 days
Net saving vs paying at term
$1000 discount − $268.5 funding cost
Take the discount — pay early and keep $731.5.
The early payment yields 14.9% annualised, well above your 4% cost of capital. Paying in full at term would leave that money on the table.
Why the discount is usually worth it
A 2% discount for paying 50 days early is a 14.9% annualised return — far above what most companies earn on cash. The few cases where it isn't worth it are when cash is genuinely scarce, or when your cost of capital is unusually high. Use your real blended rate, not a number that flatters the decision.
Cash flow matters too: if paying early would break a more important commitment, the arithmetic is only part of the decision. This tool shows the financial picture; the treasurer has the final call.
Frequently asked questions
Is a 2/10 net 60 cash discount worth taking?
The tool converts the discount into an annualised yield using discount / (100 − discount) × 365 / days gained. A 2% discount for paying 50 days early works out to about 14.9% annualised — almost always well above a typical 4% cost of capital, so the verdict is usually "take".
How is the annualised yield of an early payment discount calculated?
It is the discount earned on the reduced amount, scaled to a year: discount% / (100 − discount%) × 365 / days paid early. Days paid early is the full term minus the discount window, so for 2/10 net 60 that is 60 − 10 = 50 days.
When should I skip an early payment discount?
Skip it when the annualised yield is below your own cost of capital, or when the net saving is negative. The tool computes the net saving as the discount amount minus the funding cost of paying early at your rate — with a 50000 order, 2% discount and 4% funding over 50 days, the discount of 1000 minus a funding cost of about 268 leaves a net saving of about 731.
Use your real blended cost of capital and consider cash-flow commitments before paying early — the arithmetic is part of the decision, not all of it.