It buys only a short acceleration in cash receipt. Annualizing that short interval can produce a large percentage.
Try this with your own numbersFormula and worked example
Simple annualized discount cost = discount / (1 − discount) × 365 / days accelerated × 100
| Input | Example |
|---|---|
| Discount offered | 2 % |
| Discount payment day | 10 days |
| Normal payment day | 30 days |
| Calculated result | 37.2449 % annualized |
Choose reliable inputs
Plan materials, travel and crew time before committing to a price. For this insulation installation calculation, use a completed job sheet, supplier quotes and a crew schedule and a consistent definition of one installation.
- Insulation: include the portion belonging to this installation or reporting period, and record where the value came from.
- Access: include the portion belonging to this installation or reporting period, and record where the value came from.
- Crew time: include the portion belonging to this installation or reporting period, and record where the value came from.
Use the same currency for every money input. Do not mix weekly costs with monthly revenue, or count the same expense in both an itemised cost and allocated overhead.
Why can a small invoice discount have a high annualized cost?
It buys only a short acceleration in cash receipt. Annualizing that short interval can produce a large percentage.
Simple annualization assumes repeatable terms and is not an APR or loan quote.
What if this input changes?
If discount offered rises by 10%, this example changes by 3.8083 % annualized. This shows the effect of one change; it does not predict what will happen.
Open the calculator, save your baseline, then change the input supported by the least reliable estimate in your records. Compare both scenarios before committing to a price or capacity promise.