The formula
Annualised% = (d ÷ (100 − d)) × (365 ÷ (Net days − Discount days)) × 100
The d/(100−d) term reflects that the discount applies to the full invoice while you pay the discounted amount — you earn $2 on a $98 outlay, not on $100. The time term annualises over the days of acceleration: the shorter the gap between the discount window and the net date, the more furious the annualised rate.
The comparison against your cost of funds completes the decision: financing the early payment at 12% annual for 20 days costs far less than a 37% annualised return earns. The discount loses only when borrowing is very expensive, cash is genuinely unavailable at any price, or taking it would breach a covenant or buffer that matters more.
How to use this calculator
- 1
Read the terms precisely
Identify the discount percentage, the discount window and the net date — "2/10 net 30" style terms, or their prose equivalent in the contract.
- 2
Compute the annualised return
The calculator does this from the three numbers. Anything above 20% annualised deserves attention; many terms exceed 30%.
- 3
Enter your true cost of funds
Overdraft rate, credit line rate, or the return your cash earns elsewhere — whichever source would actually fund the early payment.
- 4
Mind the settlement time
Paying "within 10 days" means cleared funds by day 10 on most terms — initiate with the payment route’s settlement time subtracted, or the discount evaporates in transit.
Why suppliers offer returns this generous
A supplier offering 36% annualised is telling you about their working capital position: cash today is worth extraordinary amounts to businesses financing production cycles at emerging-market interest rates, chasing quarter-end targets, or lacking access to affordable receivables finance. The discount is often cheaper for them than factoring — and unlike a lender, you already know the invoice is good.
This makes discount terms negotiable in both directions. Buyers with strong cash positions can propose early-payment discounts where none are offered — "we pay in 7 days for 1.5%" is a legitimate opening — and suppliers under cash pressure frequently accept. Systematic buyers effectively run a high-yield lending book against their own payables, collateralised by goods they were buying anyway.
The cross-border complication — and opportunity
International terms add two frictions: settlement time consumes part of the discount window (a 10-day window minus 4 days of settlement leaves 6 real days to decide and initiate), and payment costs offset part of the gain (a 1.5% all-in payment cost against a 2% discount narrows the prize). Both belong in the calculation before the discount is chased.
The offsetting opportunity: FX timing. Paying a foreign-currency invoice 20 days early also fixes the exchange rate 20 days early — removing 20 days of rate drift on the payable, which the Rate Drift Calculator can price. In volatile pairs, the certainty value of early conversion can rival the discount itself, making the combined case stronger than either alone.
Common use cases
Take-or-skip decisions
Compute the annualised return against your cost of funds each time terms are offered.
Proposing terms to suppliers
Size a discount proposal that beats your treasury yield and their financing cost simultaneously.
Cash allocation
Rank available discounts by annualised return when cash cannot take them all.
Working capital policy
Decide whether drawing a credit line to capture discounts is profitable at your rates.
Automate this with the API
Net the payment cost from a live indicative quote against the discount.
curl "https://keybs.io/api/v1/tools/quote/live?from=USD&to=CNY&amount=20000" \ -H "x-api-key: YOUR_FREE_KEY"Free Tools API docs and key registration
Frequently asked questions
Why is a 2% discount worth 37% annualised?
Because it buys only 20 days of acceleration. Earning 2.04% (on the discounted outlay) in 20 days, repeated 18.25 times a year, compounds to a very large annual figure — the shortness of the window is what makes the rate ferocious. The same 2% for 60 days of acceleration would annualise to about 12.4%.
Should I borrow to take a discount?
When the annualised discount return exceeds the borrowing rate and the borrowing does not breach buffers or covenants, yes — that is arbitrage, not risk. A 37% return funded at a 14% overdraft is a 23-point spread. The calculator shows the net benefit after financing so the comparison is explicit.
The discount window is 10 days but my payment takes 4 days to settle — what then?
Your effective decision window is 6 days, and initiation must happen inside it. Confirm whether the supplier’s terms mean funds received or payment initiated by day 10 — most mean received. Fast settlement routes widen the usable window; the Value Date Planner runs the back-calculation.
Do early payments create supplier-side risk?
Paying early increases your exposure if the supplier fails to deliver — you have surrendered the leverage of the unpaid balance sooner. For established relationships with delivery history this is usually acceptable; for new suppliers, structured payments (deposit and balance, or escrow-style workflows on eligible routes) manage the same risk explicitly.
Is skipping the discount ever correct?
Yes: when cash is unavailable at any acceptable price, when borrowing would breach a covenant or a liquidity buffer that protects more than the discount earns, or when the supplier’s delivery reliability makes early surrender of payment leverage unwise. The point is to skip by calculation, not by default.
How does KeyBS Pay affect the discount arithmetic?
Two inputs improve: disclosed payment costs (from 1.5%, route-dependent) let you net the payment cost against the discount precisely, and route-level settlement estimates on each quote tell you how much of the discount window transit will consume. Both numbers appear on the quote before you approve.
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