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The Invoice Payment Terms Calculator analyzes early-payment discount offers (commonly notated 2/10 Net 30 — meaning '2% off if paid within 10 days, otherwise full amount due in 30 days') to compute the effective annualized return of taking vs declining the discount. The standard formula: Effective APR = (Discount% / (1 − Discount%)) × (365 / (Net Days − Discount Days)). For a 2/10 Net 30 invoice, that's (2/98) × (365/20) = 37.24% effective APR — extraordinarily attractive vs typical capital costs of 8–15%. Freelancers and B2B sellers use this in two directions. As an issuer offering terms: the discount cost (revenue forgone) is real but accelerated cash flow improves working capital and reduces collection risk. As a buyer evaluating an incoming discount offer: compare the 37% effective APR to your cost of capital (credit line rate, opportunity cost of cash sitting in operating account, or what you'd earn investing the money during the 20-day extension). If your capital cost is below the effective APR, taking the discount is positive expected value; if above (e.g., you're on a 50% APR credit card), declining is better. Common payment terms and their effective APRs: 2/10 Net 30 = 37.24% (strong incentive), 1/10 Net 30 = 18.43% (moderate), 2/10 Net 60 = 14.90% (weaker), 1/15 Net 45 = 12.29% (weak), 3/10 Net 30 = 56.44% (very strong, rare). The math heavily favors short discount windows + long net terms. Some industries use seasonal discounting (5% off in slow months) which calculates differently. The broader cash flow lesson: late-paying clients impose a hidden cost on freelancers. Net 60 vs Net 15 means working with 4× more outstanding receivables; at typical SMB credit line rates of 12% APR, every $10k of receivables held an extra 45 days costs $148 in interest. Aggressive payment terms (or factoring/invoice financing) preserve liquidity and reduce reliance on debt. This calculator gives the precise framework for making these tradeoffs quantitative rather than gut-feel.
Effective APR = (Discount% / (1 − Discount%)) × (365 / (Net Days − Discount Days))
- 1Step 1 — Enter invoice amount
- 2Step 2 — Enter payment terms (typically 'Net 30/60/90' meaning full payment due in N days)
- 3Step 3 — Enter discount % and window (e.g., 2% if paid within 10 days)
- 4Step 4 — Enter your cost of capital (line of credit rate, or what you'd earn with the money elsewhere)
- 5Step 5 — Calculator computes discount dollar value: I × D%
- 6Step 6 — Calculator computes effective APR: (D / (1−D)) × (365 / (ND − DD))
- 7Step 7 — Compares effective APR to your cost of capital → take or decline recommendation
(2/98) × (365/20) = 37.24%. Pay $9,800 by day 10 instead of $10,000 by day 30 — yields 37% annualized.
(1/99) × (365/20) = 18.43%. Modest but still beats most capital costs.
If you must borrow expensively to take the discount, decline
B2B invoice term-setting (issuer side)
Cash flow optimization for freelancers and agencies
Accounts receivable strategy
Factoring vs early-pay discount comparison
Late-fee threshold decision making
Capital cost vs discount APR benchmarking
What does 2/10 Net 30 mean?
Standard B2B invoice notation: '2% discount if paid within 10 days, otherwise full amount due in 30 days from invoice date.' Other examples: 1/10 Net 30 (1% in 10 days), 2/15 Net 45 (2% in 15 days, full in 45). The first number is the discount %, after the slash is the discount window in days, then 'Net' followed by the full-payment due date.
Why is 2/10 Net 30 such a strong incentive (37% APR)?
You're effectively paying 2% to save 20 days. 20 days is 1/18th of a year, so 2% × 18 = ~36% if you simply scaled linearly — and compounding pushes it slightly higher to 37.24%. The math is just unfavorable to declining for any buyer whose capital costs less than 37% annualized.
Should I always offer early-payment discounts on my invoices?
Depends on your collection risk and cash flow. If clients pay reliably at Net 30, you're giving up 2% revenue for marginal benefit. If you have late-payers, write-offs, or are personally taking on debt to bridge gaps, the 2% buys real protection. Run the numbers: if more than 2% of receivables become problematic, offer the discount.
What if my client pays late despite the terms?
Late payment is industry epidemic — average B2B invoice in the US is paid 7–14 days late. Strategies: charge late fees (1.5% per month is standard, but check state usury caps), tighten terms (Net 15 instead of Net 30), require deposits, or use factoring services to sell receivables for immediate cash at 1–3% discount.
Are these terms common in freelance work?
Less common than in pure B2B wholesale. Most freelancers operate Net 15 or Net 30 without early-pay discounts because invoice sizes are smaller and clients are less sophisticated about cash management. Large freelance engagements ($10k+) sometimes negotiate terms similar to B2B. SaaS and recurring services typically bill monthly upfront, bypassing this dynamic entirely.
Pro Tips
For clients who chronically pay late, consider Net 15 with no discount instead of Net 30 with 2/10 discount — gives cleaner cash flow with less margin sacrifice. Late fees of 1.5%/month (18% APR) on overdue amounts often motivate the slow-pay clients without losing revenue from on-time payers.