Payment Term Optimizer
Optimize payment terms to improve cash flow while minimizing discount costs
Current Terms
Your existing payment terms
Proposed Early Payment Discount
Offer incentive for early payment
Common terms: 2/10 Net 30 (2% discount if paid in 10 days, else due in 30)
Optimization Results
Financial impact analysis
Discount Amount
$200.00
Net Amount Received
$9,800.00
Days Accelerated
15 days
Opportunity Cost Savings
$41.10
Annual Discount Cost
$20,000.00
Annual Cash Flow Acceleration
$41,095.89
Effective Annual Rate
48.67%
Return on Investment
-79.45%
Recommendation: Don't offer the discount - not cost effective
Understanding Payment Terms
Common Payment Terms
- Net 30: Payment due in 30 days
- 2/10 Net 30: 2% discount if paid within 10 days, otherwise due in 30
- 1/15 Net 45: 1% discount if paid within 15 days, otherwise due in 45
- Due on Receipt: Payment expected immediately
Benefits of Early Payment Discounts
- Improves cash flow and working capital
- Reduces days sales outstanding (DSO)
- Decreases bad debt risk
- Strengthens customer relationships
When to Offer Discounts
- When you have high-interest debt to pay
- When you need cash for growth opportunities
- When customer payment history is uncertain
- When opportunity cost exceeds discount cost