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Calculator and Formula for Discounts

Use this page if the vendor has offered a discount.

The calculator for discounts
How to use the calculation to decide whether or not to accept the discount
An example for the calculator
The formula for discounts

The calculator for discounts

Use this calculator to decide if it is economically sound to accept a discount that a vendor offers.

In the first three boxes, put in the numbers for your situation. The current rate is already in the fourth box. When you click on Calculate, the page refreshes with the answer in the box below the Calculate button with the label: Effective annual discount rate.

Discount the vendor is offering:
Enter as a decimal
For example, for 2.8% enter .028
    
Total Days in the Payment Period:      
Days Left in the Discount Period:      
Current Value of Funds Rate:

The rate in the box is the current rate.
The current rate if 1%, entered in the box as the decimal, .01

     



Result of the calculation
Effective Annual Discount Rate:
      

How to use the calculation to decide whether or not to accept the discount

If the effective annual discount rate is larger than the current value of funds rate accept the discount and pay early
If the effective annual discount rate is smaller than the current value of funds rate reject the discount and pay as close to the payment due date as possible

An example for the calculator

A vendor offers a 2 percent/10 net 30 discount, and the vendor submitted the invoice 6 days ago.

You would enter these numbers in the calculator:

Discount the vendor is offering:      .02
(turning 2% into a decimal)

Total days in the payment period:   30
(days to pay before payment is late)

Days left in the discount period         4
(10 days in total discount period minus the 6 days since the invoice was submitted.)

The box for current value of funds rate already has the current value.

After you click Calculate, the system brings back the effective annual discount rate. For this example, with the current value of funds rate of 1% (.01), the result is .0283 – larger than the .01 current value of funds rate.

Taking the discount this vendor is offering will save the government money. Therefore, you should pay now at the discounted rate.

The formula for discounts

This is the formula the calculator uses to determine if you should accept the discount and pay early.

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