Annualized Cost Of Trade Credit Calculator
Suppliers offer terms like 2/10 net 30: take a 2% discount for paying in 10 days, or pay full price in 30. Skipping that discount is really a short loan, and usually an expensive one. This annualized cost of trade credit calculator converts any discount terms into the simple annualized rate you pay for those extra days, on a 365 or 360 day basis, so you can compare it honestly against your line of credit or cost of capital.
Quick Answer
For terms of 2/10 net 30, skipping the discount costs (2 ÷ 98) × (365 ÷ 20) × 100 = 37.24% a year on a 365-day basis, or 36.73% on a 360-day basis. That is the rate you effectively pay to hold your cash 20 extra days, far above the 9% credit line in the pre-filled example, so taking the discount is the winning move unless cash is critically tight.
Key takeaways
- Skipping 2/10 net 30 is a 37.24% loan. Almost no business borrows that expensively elsewhere, so take the discount.
- Longer net periods cut the annualized cost hard: 2/10 net 60 drops it to 14.90%.
- Bigger discounts push it up just as hard: 3/10 net 30 runs 56.44% a year on a 365-day basis.
- Compare the result against your actual cost of capital before deciding; the verdict badge does this automatically.
- Quick Answer
- How the trade credit formula works
- Nominal or effective: what this rate actually is
- 365 or 360 days: pick deliberately
- Common supplier terms, annualized
- Borrowing to pay early: the arithmetic
- When skipping the discount is the right call
- What competing calculators get wrong
- Frequently asked questions
- Add This Calculator to Your Website
How the trade credit formula works
The discount is a price for a fixed number of days of credit, and the formula prices exactly those days. Pay $980 on day 10 or $1,000 on day 30: the $20 you forfeit is interest on the $980 you could have paid.
The period rate is 20 ÷ 980 = 2.0408%. Annualize it over the 20-day gap: 2.0408% × (365 ÷ 20) = 37.24%. The general formula is (discount ÷ (100 − discount)) × (days in year ÷ (net days − discount days)) × 100. Note the denominator is (100 − discount), not 100: the rate applies to the discounted price you actually pay, which is the economically correct base. The same treatment appears in standard corporate finance teaching, such as the working-capital chapters of OpenStax Principles of Finance, and it is why a discount that looks small on the invoice turns into a very large annual rate.
Nominal or effective: what this rate actually is
This calculator reports the simple annualized (nominal) cost: the period rate multiplied by how many periods fit in a year, with no compounding. That is the standard textbook figure, and it is the right one for comparing one supplier’s terms against another’s on equal footing.
It is not the compounded effective annual rate, and the page will not call it one. Compounding the 2.0408% period rate over 18.25 periods gives (1.020408)18.25 − 1 = 44.59% for 2/10 net 30. Both numbers describe the same terms; the compounded one is larger because it assumes you repeat the cycle and earn the period rate on a growing base. If a lender quotes you an effective rate, compare it against 44.59%, not 37.24%. If a supplier or a textbook quotes the nominal cost of trade credit, 37.24% is the matching figure. Mixing the two is the quietest way this comparison goes wrong. For a general-purpose conversion between nominal and compounded rates, the effective interest rate calculator does that job on any rate you enter.
365 or 360 days: pick deliberately
Use 365 for the calendar-year rate. Some suppliers and older finance texts annualize over a 360-day commercial year, which lowers the 2/10 net 30 result to 36.73%.
The half-point gap rarely changes a decision on its own, but mixing conventions when comparing two suppliers’ terms does corrupt the comparison: a 360-day quote will always look cheaper than the identical terms quoted on 365. The day-count selector in the calculator is there so both sides of a comparison use the same ruler. Trade payables are large enough for this to matter at scale: the Federal Reserve’s Financial Accounts of the United States track trade payables as a standing source of business financing, and the Federal Reserve Small Business Credit Survey regularly finds payment terms among the financing pressures small firms report.
Common supplier terms, annualized
Every figure in this table was produced by the calculator above on the 365-day basis. Read the pattern, not just the rows: the discount size drives the rate up, the extra-days gap drives it down.
| Terms | Annualized cost (365-day) | Reading |
|---|---|---|
| 1/10 net 30 | 18.43% | Pricey |
| 2/10 net 30 | 37.24% | Very expensive |
| 3/10 net 30 | 56.44% | Very expensive |
| 2/10 net 60 | 14.90% | Moderate |
| 1/15 net 45 | 12.29% | Moderate |
A small 1% discount on generous 45-day terms costs less than a typical credit card. A 3% discount on tight 30-day terms costs more than most short-term lending a business would ever accept knowingly. One caution on old copies of this table: the 3/10 net 30 row is sometimes printed as 55.68%, which is the 360-day result wearing a 365-day label. On the basis stated, the calculator’s answer is 56.44%.
Borrowing to pay early: the arithmetic
When the annualized cost beats your borrowing rate, drawing on a credit line to pay on day 10 is not cleverness, it is arithmetic. On a $1,000 invoice at 2/10 net 30, you borrow $980 for 20 days.
- Interest on the loan at 9%: $980 × 9% × (20 ÷ 365) = $4.83.
- Discount captured by paying early: $20.00.
- Net gain per $1,000 invoice: $15.17, before any line fees.
Scale that across a year of purchases and the forgone discounts usually dwarf the interest bill. The discipline is in the payment run, not the decision: discounts are lost by slow approval chains far more often than by deliberate choice. Tracking how long your firm actually takes to pay is what the days payable calculator measures, and stretching that number deliberately, past the discount window, is exactly the cost this page prices. The wider cash picture sits in the days working capital calculator, which shows how payables timing interacts with receivables and inventory.
When skipping the discount is the right call
Sometimes it is. The rate is a comparison, not a command, and three situations beat it.
Cash is genuinely constrained
If paying early forces a more expensive emergency loan, a missed payroll, or a default elsewhere, the 37.24% is the cheaper problem.
The cash earns more elsewhere
If the same cash clears a higher-return, time-critical use inside the window, compare that return against the rate here, honestly and after risk.
The terms are soft in practice
Some suppliers accept the discount a few days late from long-standing customers. That is a relationship judgment, not a formula input, and it cuts both ways.
What never justifies skipping is habit: paying every invoice on day 30 because that is when the run happens. Late payment beyond agreed terms is a different matter again, and a regulated one in many jurisdictions; the UK government’s guidance on late commercial payments, interest and debt recovery sets out the statutory interest a supplier can charge, which can quietly exceed the discount you skipped. If you are checking the size of a discount itself rather than its timing cost, the discount percent calculator handles the percentage arithmetic.
What competing calculators get wrong
The formula is standard, so rival tools rarely get the arithmetic wrong. They get the decision wrong, by stopping one step early or hiding an assumption.
- No day-count choice (BraveCalculator and most clones): the same formula with 365 hard-coded and never stated, so a user comparing against a supplier’s 360-day quote is comparing two different rulers without knowing it.
- No decision rule (nearly all of them): a percentage is printed and the page ends. “So should I pay early?” is the actual question, and it needs your cost of capital in the comparison, which is why the verdict field exists here.
- Nominal and effective rates blurred (homework-help and explainer pages): several present the compounded effective rate and the simple annualized rate side by side without saying which a tool reports, and some assume a 360-day year inside a question that never mentions it.
- Explainers with no tool at all (WallStreetMojo and similar): the 2/10 net 30 walkthroughs show receivables arithmetic but never annualize your own terms, so a 1/15 net 45 supplier leaves you doing the formula by hand.
- The gap this page fills: your terms, your day-count basis, and your cost of capital in one run, with the dollars per $1,000 invoice printed next to the rate and an explicit statement of whether the figure is nominal or effective.
Frequently asked questions
You may deduct 2% if you pay within 10 days; otherwise the full invoice is due in 30 days. It is the most common early-payment term in US business purchasing, designed to accelerate the supplier’s cash collection.
Because the 2% buys only 20 extra days. Earning 2.04% in 20 days, repeated across the whole year, adds up to an enormous annual rate. Small discounts over short gaps are the most expensive credit in business finance, which is exactly why suppliers offer them.
Nominal. The calculator multiplies the period rate by the number of periods in a year, with no compounding: 37.24% for 2/10 net 30 on a 365-day basis. Compounded, the effective annual rate for the same terms is 44.59%. Compare nominal with nominal and effective with effective.
Use 365 for the exact calendar-year rate, which is what corporate finance textbooks teach. Use 360 only if your supplier or industry convention quotes that way. Never compare two suppliers’ terms computed on different bases.
It turns the rate into a decision. If the annualized cost is higher than your cost of capital, the verdict says to take the discount; if it is lower, skipping is cheaper than your own money. Leave the field blank and the verdict grades the rate on its own: 30% and up is very expensive, 15% and up is pricey, below that is moderate.
When cash is genuinely constrained: if paying early would force you into a more expensive emergency loan, risk missing payroll, or forfeit a higher-return use of the cash. The calculator’s verdict compares the annualized cost against your cost of capital to make the call explicit.
No. The rate is identical whether the invoice is $1,000 or $1,000,000; only the dollars at stake change. On $1,000,000 of 2/10 net 30 purchases, skipping every discount costs about $20,000 per cycle in forgone savings.
Economically, yes: the supplier funds your 20 extra days of float and charges $20 per $980 for it. Recognizing it as a 37% loan is what makes the borrow-to-pay-early decision obvious.
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References
- Board of Governors of the Federal Reserve System. Financial Accounts of the United States (Z.1). Accessed October 24, 2026.
- Federal Reserve Banks. Small Business Credit Survey: Reports. Accessed October 24, 2026.
- OpenStax, Rice University. Principles of Finance. Accessed October 24, 2026.
- OpenStax, Rice University. Principles of Managerial Accounting. Accessed October 24, 2026.
- Dahlquist, J., Bauer, R. and Yesilyurt, S. Principles of Finance. University of Minnesota Open Textbook Library. Accessed October 24, 2026.
- U.S. Small Business Administration. Manage Your Finances. Accessed October 24, 2026.
- Board of Governors of the Federal Reserve System. Senior Loan Officer Opinion Survey on Bank Lending Practices. Accessed October 24, 2026.
- Federal Reserve Bank of St. Louis. Nonfinancial Corporate Business: Trade Payables (FRED series TCPNBBS). Accessed October 24, 2026.
- GOV.UK. Late Commercial Payments: Charging Interest and Debt Recovery. Accessed October 24, 2026.
- European Commission. Late Payments in Commercial Transactions. Accessed October 24, 2026.