How to Calculate Invoice Payment Terms
What is Invoice Payment Terms?
The Invoice Payment Terms Calculator helps freelancers and small businesses analyze whether to offer early-payment discounts (2/10 Net 30 = 2% off if paid in 10 days, else full Net 30). Computes effective APR of the discount vs your cost of capital. A 2% / 10 days discount = 36.7% effective APR — usually worth offering if your capital cost is below that.
Formula
Effective APR = (Discount% / (1 − Discount%)) × (365 / (Net Days − Discount Days))
- D
- Discount (%) — Early payment discount rate
Step-by-Step Guide
- 1Enter invoice amount
- 2Enter payment terms (Net 30/60/90)
- 3Enter discount % and window
- 4Enter your cost of capital (line of credit rate or opportunity cost)
- 5Calculator outputs discount value, effective APR, recommendation
Worked Examples
Input
$10k Net 30, 2/10
Result
$200 discount, 36.7% effective APR — take it if capital costs <36.7%
Common Mistakes to Avoid
- ✕Comparing nominal discount % to APR (wrong scale)
- ✕Ignoring cash flow value of faster payment
Frequently Asked Questions
What's a typical setup?
2/10 Net 30 (2% off if paid in 10 days, else full in 30). This implies 36.7% APR — strong incentive. 1/10 Net 30 = 18.4% APR, weaker.
Ready to calculate? Try the free Invoice Payment Terms Calculator
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