The Take/Pass Decision
Take the early payment discount when: Annualized discount cost > Your cost of capital
Pass when: Annualized discount cost < Your cost of capital
For 2/10 net 30 at 37.2% annualized cost, almost any business should take the discount. The question is whether you have the cash.
Decision Matrix
| Cash Position | Cost of Capital | Recommendation |
|---|---|---|
| Strong | Any rate | Always take the discount |
| Tight | Below discount cost | Borrow to take the discount |
| Tight | Above discount cost | Pass — preserving cash is cheaper |
| Crisis | N/A | Pass — survival first |
When Suppliers Offer Discounts
If you're offering discounts to customers (as a seller), the math is reversed — you're the one paying. Model the cost carefully: offering 2/10 net 30 reduces your effective realized revenue by 2% on early payers.
The Invoice Discount Calculator handles both buyer and seller perspectives.