In supply chain finance and procurement, vendors often offer terms like "2/10 net 30". This means the buyer can take a 2% discount if they pay within 10 days; otherwise, the full net price is due in 30 days. While the 2% discount might seem small, the Net Price Equivalent Rate (or the implicit interest rate of foregoing that discount) is often incredibly high.
Why calculate this? Determining the equivalent annual rate allows a business to decide whether it is cheaper to borrow money (e.g., from a line of credit at 8%) to pay the invoice early, or to delay payment and pay the full price.
The Logic Behind the Calculation
When you choose not to pay early, you are essentially "borrowing" the remaining amount from your supplier for the duration of the gap between the discount date and the final due date.
For example, in a "2/10 net 30" scenario:
You save 2% by paying on Day 10.
If you pay on Day 30, you keep your money for an extra 20 days.
The cost of that 20-day "loan" is the 2% you lost.
The calculator annualizes this cost to give you an APR that can be compared against bank interest rates.
Mathematical Formulas Used
This calculator computes two primary metrics based on the input variables:
1. Nominal Annual Rate
This is the simple interest rate extrapolated over a 365-day year.
If a supplier offers terms of 1/10 net 30 on a $10,000 invoice:
Discount: 1%
Days Borrowed: 20 days (30 – 10)
Nominal Rate: Approximately 18.4%
Decision: If your cost of capital (bank loan rate) is 6%, you should borrow the money to pay early and take the discount, because 6% is much cheaper than the 18.4% equivalent cost of the vendor credit.
function calculateNetRate() {
// 1. Get Elements
var discountInput = document.getElementById('offeredDiscount');
var discountDaysInput = document.getElementById('discountPeriod');
var fullPeriodInput = document.getElementById('fullPeriod');
var invoiceInput = document.getElementById('invoiceTotal');
var resultArea = document.getElementById('resultsArea');
var errorDisplay = document.getElementById('errorDisplay');
var nominalDisplay = document.getElementById('nominalRateResult');
var effectiveDisplay = document.getElementById('effectiveRateResult');
var netPriceDisplay = document.getElementById('netPriceResult');
var savingsDisplay = document.getElementById('savingsResult');
// 2. Parse Values
var dPercent = parseFloat(discountInput.value);
var dDays = parseFloat(discountDaysInput.value);
var fDays = parseFloat(fullPeriodInput.value);
var invoiceVal = parseFloat(invoiceInput.value); // Might be NaN if empty
// 3. Validation
// Reset error state
errorDisplay.style.display = 'none';
resultArea.style.display = 'none';
if (isNaN(dPercent) || isNaN(dDays) || isNaN(fDays)) {
errorDisplay.innerText = "Please enter valid numbers for Discount %, Discount Period, and Net Period.";
errorDisplay.style.display = 'block';
return;
}
if (dPercent = 100) {
errorDisplay.innerText = "Discount percentage must be between 0 and 99.";
errorDisplay.style.display = 'block';
return;
}
if (dDays >= fDays) {
errorDisplay.innerText = "The Discount Period must be shorter than the Full Net Period.";
errorDisplay.style.display = 'block';
return;
}
// 4. Calculation Logic
// Days you are "borrowing" the money by not paying early
var daysBorrowed = fDays – dDays;
// The rate for that specific short period
// Formula: Discount / (1 – Discount)
// We use decimal form for calculation (e.g., 2% = 0.02)
var decimalDiscount = dPercent / 100;
var periodRate = decimalDiscount / (1 – decimalDiscount);
// How many of these periods fit in a year (using 365 day standard)
var periodsPerYear = 365 / daysBorrowed;
// Nominal Annual Rate
var nominalRate = periodRate * periodsPerYear;
// Effective Annual Rate (EAR) – Compounded
var effectiveRate = Math.pow((1 + periodRate), periodsPerYear) – 1;
// Monetary calculations (if invoice provided)
var netPrice = 0;
var savings = 0;
var hasInvoice = !isNaN(invoiceVal);
if (hasInvoice) {
savings = invoiceVal * decimalDiscount;
netPrice = invoiceVal – savings;
}
// 5. Display Results
nominalDisplay.innerText = (nominalRate * 100).toFixed(2) + "%";
effectiveDisplay.innerText = (effectiveRate * 100).toFixed(2) + "%";
if (hasInvoice) {
// Format currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
netPriceDisplay.innerText = formatter.format(netPrice);
savingsDisplay.innerText = formatter.format(savings);
} else {
netPriceDisplay.innerText = "N/A (Enter Invoice Amount)";
savingsDisplay.innerText = "N/A (Enter Invoice Amount)";
}
resultArea.style.display = 'block';
}