How this number is made
Terms of 2/10 net 30 mean 2% off if you pay by day 10, otherwise the full amount by day 30. Skipping the discount is a loan from day 10 to day 30. The implied annual rate is usually high.
- Discount days must be earlier than the net days.
- The classic terms are already filled in. Change them if your invoice differs.
Formula
Implied annual rate = (discount ÷ (100 − discount)) × (365 ÷ (net days − discount days)).
Worked example
With the figures already in the form, implied annual rate of skipping the discount is 37.2%.
Questions
Should I always take it?
If the implied rate is higher than your cost of cash, yes. If you are borrowing at 8% to take a 2% discount for 20 days, the discount still wins. If paying early creates an overdraft, it may not.
Is this APR exact?
It is the standard commercial approximation, annualized with 365. Compounding within the year would change it slightly.