Cash Discount Calculator
Compute the effective annual rate of cash discounts and see if paying early is really worth it.
- Discount vs. payment term
- Effective annual rate
- Instant result
Enter values to calculate
Cash discount, often called Skonto in German invoices, is not just a small price reduction. When the payment window is short, skipping a 2% or 3% discount can be equivalent to accepting a very expensive short-term loan.
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Example calculations
Invoice amount EUR 5,000, 2% discount if paid within 10 days, otherwise full payment after 30 days.
The discount saves EUR 100 and the net payment is EUR 4,900. Paying 20 days earlier is equivalent to roughly 37.2% annualized interest.
If liquidity is available, this kind of discount is often financially stronger than leaving cash idle.
Invoice amount EUR 18,000, 3% discount within 10 days, full payment after 45 days.
The discount saves EUR 540 and the net payment is EUR 17,460. The 35-day acceleration is equivalent to roughly 32.3% annualized interest.
The effective rate helps compare the discount with overdraft interest, credit lines and cash reserves.
Frequently asked questions
What is a cash discount or Skonto?
It is a price reduction for paying an invoice before the normal due date. A term like 2/10 net 30 means 2% discount if paid within 10 days, otherwise the full amount is due after 30 days.
Why does the calculator show an effective annual rate?
The discount is earned over only a few days. Annualizing it shows the implied return on using cash early, which makes it comparable with loan interest or overdraft costs.
How is the effective rate calculated?
The common approximation divides the discount by the discounted payment amount and annualizes it over the days paid early. This shows the cost of not taking the discount.
Should a business always take Skonto?
Not always. It usually makes sense when liquidity is available or financing is cheaper than the effective discount rate. It may not make sense if taking the discount creates cash-flow stress.
Does VAT change the Skonto decision?
The invoice and VAT treatment must be handled correctly in accounting, but the commercial decision is still driven by the discount amount, payment date and liquidity cost.
Can private customers use this calculator?
Yes. The same math applies if a supplier offers an early-payment discount. Businesses simply use it more often because payment terms and liquidity planning are part of normal accounting.