Net terms & early payment
Net-60 is a loan you make the client at 0% interest. An early-payment discount is you buying your own money back. Both have exact prices; this computes them so the decision stops being a vibe.
What the ledger says
Discount's implied annual rate37.2%
- Cost of waiting the full term
- $65.75
- Discount in dollars
- $200
The discount beats your opportunity rate: worth taking or offering.
Estimate, not advice
The formula
Waiting cost = amount × your rate × days ÷ 365. Implied rate of a discount = (d ÷ (1 − d)) × (365 ÷ days gained). The classic 2/10 net 30 works out to about 37% annualized, which is why buyers love it.
What this ignores
Default risk (money now is also money CERTAIN), the relationship cost of pushing terms, and cash-crunch situations where liquidity beats any rate math. When you need the cash to make rent, the implied rate is academic.
Field notes
- Should I offer early-payment discounts to clients?
- Only if slow payment is actually hurting you, and at 1-2% maximum with a tight window. At 37% annualized, 2/10 is expensive money; often a deposit requirement or shorter net terms achieves the same cash flow for free.
- A big client demands net-60. What do I do with this number?
- Price it in. The waiting cost this tool computes belongs in your rate for that client, stated or not. Net-60 at a 3% higher price is the same deal for you and usually invisible to procurement.
- A client offers to pay early IF I discount. Take it?
- Compare the implied annual rate against your opportunity rate, which this tool does. Liquid and earning 4% in savings? A 37%-implied discount is a terrible sell. Financing the gap on a 25% APR card? Take the deal.