In short
Skipping an early payment discount means taking a loan from the supplier. The effective annual rate is discount / (100 − discount) × 360 / (payment term − discount period). For «2% within 10 days, net 30 days» that is about 36.7% per year, far more than any bank loan. Taking the discount therefore almost always pays off.
How the discount calculator works
An early payment discount rewards paying early. Anyone who waits until the end of the payment term instead keeps the money a few days longer and pays the discount for it. That is nothing other than interest.
Effective annual rate = discount / (100 − discount) × 360 / (payment term − discount period)
You divide by 100 − discount because within the discount period you only pay the reduced amount. The calculation uses 360 days, as is customary in business.
Typical payment terms
| Terms | Credit period | Effective annual rate |
|---|---|---|
| 1% within 10 days, net 30 | 20 days | 18.2% |
| 2% within 10 days, net 30 | 20 days | 36.7% |
| 2% within 14 days, net 60 | 46 days | 16.0% |
| 3% within 10 days, net 60 | 50 days | 22.3% |
Even the weakest terms in the table are above the usual interest rates for an overdraft.
Frequently asked questions
- How do I calculate an early payment discount?
- Discount amount = invoice amount × discount rate. For CHF 10,000 and a 2% discount that is CHF 200, so you pay CHF 9,800.
- What is the annual rate of an early payment discount?
- Discount / (100 − discount) × 360 / (payment term − discount period). For 2% within 10 days and a 30-day payment term that gives 2 / 98 × 360 / 20 = 36.7% per year.
- Is the discount worth it if I have to use my overdraft?
- Usually yes. As long as your overdraft rate is below the effective discount rate, paying early on credit is cheaper. The calculator compares both rates.
- How does a discount affect VAT?
- A discount reduces the consideration. The supplier owes less output tax and the customer can deduct correspondingly less input tax, so VAT is calculated on the lower amount.
- Is the early payment discount regulated by Swiss law?
- No. A discount only applies if it was agreed, for example in the payment terms of the quote or invoice. Anyone who deducts it after the discount period still owes the remainder.