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Vendor Early Pay Discount Worksheet (2/10 Net 30 Annualized Return)

Early-payment discounts can be the best risk-free return in the company, or a poor deal if the terms are long. This worksheet ranks each vendor by annualized return so AP knows what to pay early.

Download:

Vendor	Annual spend	Discount (%)	Discount days (days)	Net days (days)	Annualized return	Annual discount value
					37.2%	$24,000
					10.5%	$26,000
					12.4%	$12,750
					9.2%	$1,550
					24.8%	$18,800

Total spend

$5,900,000

Total discount value

$83,100

Blended discount rate

1.4%

Compare the annualized return to your borrowing rate or return on cash. Take the discount when the return exceeds your cost of funds.

Missed discount review

Optional: we can show how missed early-pay discounts could be detected from ERP payment data.

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How to use it

List each vendor with annual spend and its terms: the discount percent, the days to earn it and the net due days. The worksheet computes the annualized return of paying early and the dollar value of the discount. Compare each return to your cost of borrowing or your return on cash. Sort mentally from highest to lowest and fund the early payments in that order.

Use only spend that is actually eligible for the discount.
Update net days if a vendor changes terms.
Export to Excel and share with treasury before the weekly pay run.

The formula

Annualized return equals discount divided by (100 minus discount), times 365 divided by (net days minus discount days). For 2/10 net 30, that is 2 over 98 times 365 over 20, which is about 37 percent. A 1/10 net 45 term yields about 10.5 percent. The same discount is far more valuable when the gap between discount date and net date is short.

Reading the result

If the annualized return exceeds the interest on your revolver, taking the discount is almost always right. If a vendor offers 0.5 percent for paying 20 days early, the return is around 9 percent and may not beat your cost of funds. Remember to check that the vendor honors the discount on partial payments and short shipments.

Common mistakes

Calculating the return on the full net period instead of the accelerated days badly understates it. Taking the discount but paying late forfeits the benefit and annoys the vendor. Also ensure the discount is calculated on net invoice amounts, excluding freight and tax if the terms say so.

Frequently Asked Questions

What does 2/10 net 30 mean?

The buyer may deduct 2 percent if the invoice is paid within 10 days; otherwise the full amount is due in 30 days. Paying on day 10 instead of day 30 earns roughly 37 percent annualized.

Should I always take early pay discounts?

Not always. Take them when the annualized return exceeds your cost of funds or the return on your cash. Cash-strapped firms may borrow to take high-return discounts.

How do I handle several vendors?

List each vendor on its own row. The blended rate in the summary shows the average discount value across all spend, but rank by annualized return when funding payments.

Does it work in any ERP?

Yes. Enter terms from your vendor master or AP aging, whether the system is Eclipse, Prophet 21 or something else. The sheet does not connect to any system.

Netray can help identify missed early-payment discounts by comparing payment dates to vendor terms in your ERP data.

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