Understand the 2% Early Payment Discount

An annualized return of 37%

Suppose your distributor offers a 2% discount to the workshop that pays its bills within 10 days; otherwise, the full amount is due within 30 days. This type of discount is generally referred to as a 2%/10, 30 net clause.

By paying the invoice within 10 days, you give up access to your cash for 20 days in exchange for a 2% discount. This 2% return over 20 days is very high; it translates into an annualized return of 37%. A 1%/10, 30 net clause offers an annualized return of 18%.