Legal practice Early Payment Discount Cost
Simple annualized discount cost = discount / (1 − discount) × 365 / days accelerated × 100
Gather time sheets, engagement scopes and invoice ageing. Include professional time, filing expenses, and admin support. The starting figures are examples. Replace them with your own records.
Formula 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
Account for delivery time, review work and when you expect to be paid for each engagement. For this legal practice calculation, use time sheets, engagement scopes and invoice ageing and a consistent definition of one matter.
- Professional time: include the portion belonging to this matter or reporting period, and record where the value came from.
- Filing expenses: include the portion belonging to this matter or reporting period, and record where the value came from.
- Admin support: include the portion belonging to this matter 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.