Free tool
Cash discount calculator
A 2% discount for paying 35 days early sounds small. As a yearly rate it is over 20%. Enter the terms and your borrowing rate to see whether to take it, or what to offer.
Your cash credit or overdraft rate. 11% is only an example.
Result
Take the discount
It earns 21.3% a year, against the 11.0% your money costs. On this invoice you keep ₹966 after interest.
- The discount as a yearly rate
- 21.3%
- Discount on this invoice
- ₹2,000
- Interest on the money for 35 days
- ₹1,034
- Gain from taking it
- ₹966
Yearly rate = discount ÷ (100 − discount) × 365 ÷ (net days − discount days). Terms such as 2/10 net 45 mean 2% off if paid in 10 days, otherwise the full amount in 45.
Next step in MatruOS
MatruOS keeps each supplier's terms on their bills and lists which discounts are worth taking at your borrowing rate before they expire.
Plan supplier payments in MatruOSKeep this result
Method
How this is worked out
Every figure the tool uses is listed here. Assumptions are fields in the tool, so you can change them to match your business.
- Yearly rate = discount ÷ (100 − discount) × 365 ÷ (net days − discount days).
- As a buyer, take the discount when the yearly rate is above your borrowing rate. The gain = discount − interest on the money paid early.
- As a seller, the discount that costs the same as borrowing = k ÷ (1 + k), where k = your rate × (net days − discount days) ÷ 365.
- The 11% borrowing rate is only an example. Use your own cash credit or overdraft rate.
Questions
Questions people ask
Should I offer a cash discount to customers?
Only if the yearly rate it costs you is lower than what late payment costs you, including the borrowing you need while you wait. The tool shows the discount that costs the same as borrowing.
How is GST handled on a cash discount?
A discount written into the invoice terms reduces the taxable value. One agreed later needs a credit note linked to the invoice. Check the treatment with your CA.
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