The difference has to do with two ways of looking at the discount. A common perspective focuses on the equivalent annualized rate of return over 20 days (the number of more days you would hold your money to go to the full 30 day term) of the 2 percent realized by paying early as an effective rate of return.

The calculation annualizes a 2 percent ROR over 20 days. So (for sake of accounting ease) 360 days in a year, divided by 20 days is 18, which is then multiplied by 0.02 (i.e. two percent), which produces 0.36 (36 percent). This calculation is saying that in order for you to equal the value of the discount offered by paying 20 days early, you'd have to be able to see over the 20 days you held onto the cash, an annualized ROR of 36 percent. Short term investments do not come close to that.

As for TAPN's calculator, it is a simple rate of return of the discount. It's calculating the value of the 2 percent saved over 10 days. It's saying if I pay this $10,000 invoice in ten days instead of thirty, I'll only pay $9,800, and I'm $200 to the good in ten days. So I'm holding $10,000 and I can wait 30 days and pay it all, leaving me nothing, or I can pay $9,800 in ten days and still be holding $200. So that 2% is "earned" in ten days. If you annualize a ten day 2 percent ROR, it comes to 72 percent. 360 divided by 10 is 36, times .02 = 0.72 or 72 percent.

# Do you have any information on the cash value of taking or not taking a payment discount? Some sources say it is 36 percent annually while TAPN's Discount Calculator says its 72 percent annually. Which is true?

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