Cost of Trade Credit Calculator (2/10 Net 30)
Find the annual cost of skipping an early-payment discount such as 2/10 net 30 — nominal and effective rate, the discount you give up and whether to borrow to pay early.
How it works
Nominal annual cost = d ÷ (1 − d) × days in year ÷ (net days − discount days) · effective annual cost = (1 + d ÷ (1 − d))^(days in year ÷ (net days − discount days)) − 1
Terms such as “2/10 net 30” mean the buyer may deduct 2% if it pays within 10 days, otherwise the full invoice is due in 30 days. Not taking the discount is like borrowing the discounted amount for the extra 20 days and paying the discount as interest — a very expensive loan. Corporate-finance textbooks (Brigham & Ehrhardt, Ross–Westerfield–Jaffe) use this formula to decide whether to pay early: if a bank loan or credit line costs less than this rate, borrow and take the discount.
Worked example
On 2/10 net 30 terms, skipping the 2% discount lets you pay 20 days later. The cost is 2 ÷ 98 = 2.04% for 20 days, or 2.04% × 365 ÷ 20 = 37.24% a year nominal and (1.0204)^18.25 − 1 = 44.59% effective. On a 10,000 invoice you give up 200 by paying 10,000 on day 30 instead of 9,800 on day 10 — so borrowing at anything below 37.24% to pay early is worth it.
Sources: eFinanceManagement — Cost of trade credit · Wikipedia — Trade credit
Frequently asked questions
What does 2/10 net 30 mean?
A 2% discount if you pay within 10 days; otherwise the full amount is due within 30 days.
Why divide by (1 − d) and not just d?
If you skip the discount you are effectively borrowing only the discounted amount (98% of the invoice) and paying 2% of the invoice for it, so the periodic rate is 2 ÷ 98 = 2.04%.
Should I borrow to take the discount?
Yes, if your credit line or loan costs less than the annual cost shown. With 2/10 net 30 that is about 37% a year, so almost any business loan is cheaper.
What if I pay even later than the net date?
Stretching payables lowers the implied cost because the extra days grow, but it damages supplier relationships and credit ratings and may trigger late fees.
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Educational estimate, not credit, accounting or investment advice. Lenders, auditors and rating agencies adjust these ratios with their own definitions — use the exact definitions in your loan agreement or reporting framework.