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How does 72% rate of return sound?

May 15, 2013

If you have vendors that offer early pay discounts (2, 10 30), then you can achieve a rate of return of 72%.  The Accounts Payable Network advances that the rate of return for early pay discounts should be calculated over the 10 days for the discount term. 

The logic for a $10,000 invoice (with 2/10, net 30 terms) is realize that if I pay $10,000 over ten days instead of thirty, I only pay $9,800 and I am $200 to the good in ten days.  So, I earned $200 in ten days and if the amount is annualized, a 10 day 2% Rate of Return comes to 72%.  360 dividing by 10 is 36 times .02 =.72 or 72%.

 

For more information visit The Accounts Payable Network