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Trade Credit Terms Calculator: Calculate trade credit terms in Seconds

Calculate impact of trade credit terms (2/10 net 30, etc). This tool helps you calculate, understand, and optimize this metric for your business.

By Veira Finance Expert, Finance Advisor at VeiraPublished June 2024Updated June 2024
Calculator
Result
Paying early is worth about 37% a year
Invoice valueKES 400,000
Discount for paying within 10 daysKES 8,000 (2%)
Amount if you pay earlyKES 392,000
Extra days you gain by not taking it20 days
Annualised value of the discount37.2%

Taking the discount is effectively earning 37% a year on the money you pay 20 days early. Compare that against what the cash costs you: if your overdraft or supplier financing charges less than that, borrowing to take the discount makes money. If it charges more, take the full term.

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What 2/10 net 30 is really worth

Terms like 2/10 net 30 mean a 2% discount if you pay within 10 days, with the full amount due at 30. Taking it means paying 20 days early to save 2%, which annualises to roughly 37%.

That is the number to compare against your cost of money. If an overdraft or a supplier facility costs less than the annualised discount, borrowing to take the discount makes money. If it costs more, take the full term and keep the cash.

Why the annualised figure surprises people

A 2% discount sounds trivial and a 37% annual return does not, yet they are the same thing described over different periods. Small discounts over short windows are worth far more than they look.

The reverse also holds: offering early settlement discounts to your own customers is expensive financing, and it is worth pricing the same way before you advertise it.

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Worked examples

2/10 net 30 on a KES 400,000 invoice
  • Discount KES 8,000 for paying 20 days early
  • Annualised, about 37.2%
  • Worth borrowing for if your cash costs less than that

Frequently asked questions

What does 2/10 net 30 mean?
A 2% discount if you pay within 10 days, with the full amount due at 30. You are paying 20 days early to save 2%.
Is an early payment discount worth taking?
Compare the annualised value against your cost of money. A 2/10 net 30 discount annualises to roughly 37%, so if your overdraft costs less than that, borrowing to take it makes money.
Why does a 2% discount annualise so high?
Because you earn it over 20 days rather than a year. Small discounts over short windows are worth far more than they look, which is the whole point of calculating it this way.
Should I offer early settlement discounts to my own customers?
Price it the same way first. Offering 2/10 net 30 is lending at roughly 37% annualised, which is expensive financing and worth comparing against simply chasing invoices harder.

Doing this by hand every time? Veira runs the same calculation automatically on every sale, no spreadsheet required.

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