How this calculation works
Paying early reduces the supplier payment but may require financing until the full-price due date. Compare the discount saving with interest on the discounted amount over that gap. Annualized discount equivalents describe the opportunity cost of declining the terms, not a quoted loan APR.
Net saving = invoice × discount − discounted payment × annual borrowing rate × day gap / day-count yearA worked example
A ₹10,000 invoice on 2/10 net 30 terms saves ₹200 if paid on day 10. Borrowing ₹9,800 for 20 days at 12% simple interest on a 365-day basis costs about ₹64.44, leaving a modeled saving of ₹135.56.
Good to know
Simple interest, entered terms and no fees. No tax change, penalties or eligibility determination. The effective annualized opportunity rate is not the borrowing contract APR.
Reference: OpenStax: trade credit and payment terms (opens in a new tab) ↗
Translate invoice notation into two dates
Terms such as 2/10 net 30 describe a discount window and a later full-payment deadline. The relevant financing period is the gap between those choices, not the full interval from the invoice to the final deadline.
All day inputs use the same invoice origin. If the final due day is not later than the discount day, there is no positive financing gap for this comparison. Confirm whether the supplier’s contract uses calendar or business days.
Borrow the discounted amount
The amount paid early is the invoice less the discount. That smaller payment is the amount financed through the remaining gap. Charging interest on the full invoice would overstate this specific borrowing requirement.
The supplier discount saving is compared with simple interest over that gap. Loan fees, minimum charges, daily compounding and taxes could change the actual decision and are not hidden inside the entered annual percentage.
Distinguish simple and effective annualization
A short-term discount can imply a surprisingly large annualized opportunity cost. The simple equivalent scales the period return, while the effective equivalent assumes the same proportional opportunity could be repeated through a year.
Neither annualized number is a guaranteed investment return or the APR of an actual borrowing product. The day-count basis is explicit because using 360 rather than 365 changes interest and annualized comparisons.
Compare payment timing consistently
The cash versus installments present cost calculator discounts a different purchase schedule. This page compares a specific supplier early-payment offer with financing over one short gap, so its assumptions should not be silently substituted into a longer installment plan.
The simple interest calculator can verify the financing arithmetic for a fixed amount and interval. Add any actual lender fees separately before deciding; a positive modeled saving does not make financing available or settle a disputed invoice.
A few questions, answered
Which amount is borrowed?
The discounted early-payment amount, for the gap until the final due date.
Is the annualized discount equivalent a loan APR?
No. It describes the opportunity cost under the stated repetition convention.
Are fees included?
No. Add actual fees and check the lender and supplier contracts separately.