Calculate the Annual Effective Rate of your Prompt Payment Discount
If you are able to get a discount by paying your supplier earlier, do you hesitate in doing so? It is always wise to annualize the rate of your prompt payment discount in order to evaluate your opportunity cost.
A prompt payment discount is an opportunity to invest in a company by injecting an amount of money into it prematurely, in order to get a return: the discount. However, this investment could deprive other areas of the business. Annualizing the prompt-pay rate will help you compare its return with your weighted average cost of capital, allowing you to find out whether it's more profitable to invest in the discount allowance or elsewhere in the business.
Please change the suggested values with your own amounts in the blue text boxes.
Our financial calculators start with default values to suggest what to enter typically in each modifiable field, displayed as blue text boxes, in order to simulate a common scenario. Please change those values with your own. To keep track of your changes, the blue box will turn gray after they are modified.
You will also notice that our calculators behave like financial applications and recalculate automatically all values with each change instead of having to click on some extra button or going to a new result page, this is intentional and helps understand the effect of one change with the overall result in a more dynamic and instantaneous manner.
However, charts in our older calculators are not updated automatically, so if there is an "Update" button next to the chart, make sure to click on it after you make a change before you analyze it.