A supplier’s $1,000 invoice offers a 2% discount for paying within 10 days. Otherwise the full amount is due in 30 days. The buyer can save $20. That saving is useful only after the buyer knows which payment date it can afford and what it would cost to free the cash sooner.
Write down the two possible payments
Invoice shorthand such as “2/10, net 30” commonly describes terms like these. In the fictional example, paying by day 10 costs $980 and paying on day 30 costs $1,000. The difference is $20 and the gap between the payment dates is 20 days. Read the actual agreement to see when the count starts and which items qualify. A percentage printed on the invoice may apply only to eligible charges.
The U.S. Treasury’s Bureau of the Fiscal Service describes an early-payment discount in the federal purchasing context and provides a calculator that uses the terms and timing. A private business’s terms come from its own agreement. Keep the discount deadline, the full due date and the payment method beside the two amounts.
Compare the timing with the cash you need
Suppose the buyer can use $980 from its own account and still meet upcoming wages and bills. The immediate saving is $20. If the buyer would need short-term funding to make the earlier payment, compare the complete cost of that funding for the same 20 days. In a simplified example with a $12 all-in funding cost, the $20 discount would leave $8 of net savings. With a $24 cost, the funding would exceed the discount by $4.
For a short-period comparison, $20 is about 2.04% of the $980 used 20 days early. That expresses the difference relative to the amount put to work early. The supplier’s stated 2% is measured against the original $1,000 invoice. Keep the different denominators beside the two percentages.
Check the rest of the payment schedule
Even when the arithmetic favours earlier payment, look at what else comes due between day 10 and day 30. A payroll debit or tax payment could fall in that window, and a customer receipt could arrive later than planned. Move the $980 to day 10 in the cash forecast and see how far the balance falls. Then test the date on which the supplier treats payment as received, allowing for processing.
- Confirm the invoice amount eligible for the discount.
- Compare the payment amounts and dates on the same calendar.
- Include funding costs and other commitments before using the earlier date.
Sources & further reading
- U.S. Treasury guide to payment discounts
Explains how discount terms and start dates work in U.S. federal purchasing.
- U.S. Treasury discount calculation guide
Shows how the discount and days between payment alternatives affect the comparison.