Trade Credit vs Cash Discount

If supplier offers "2/10 net 30" (2% discount if paid in 10 days, full price by day 30): annualized cost of NOT taking discount is ~37%. Almost always cheaper to take discount unless your cost of capital exceeds 37%. Rare exception: severe cash shortage.

Larger orders, longer relationships, prompt payment history, and competitive bids. Most suppliers can extend net 30 to net 60-90 for good customers. Trade credit is essentially free financing - leverage it before bank loans.

Only if cash discount exceeds your cost of capital (typically yes). Otherwise hold cash for working capital, opportunities, or interest income. Pay on the last day of net terms, not earlier. Build relationships through reliability, not early payment.

It means you can take a 2% discount if you pay within 10 days; otherwise the full amount is due in 30 days. The figure before the slash is the discount percentage, and the one after it is the number of days to qualify.

It is what you could earn by holding onto that cash for the extra days before the full amount is due, at your funding or return rate. The calculator compares it directly against the savings from the discount.

Consider drawing on a revolving line of credit to fund the early payment. If the line costs 8-12% and the implied discount is worth 37%, using the line to capture the discount is a net-positive arbitrage.