How to Use This Tool
Set the invoice date and the terms. The due date is the easy part; the annualised discount figure is the one that changes decisions.
Net, EOM and MFI
- Net 30 — 30 days from the invoice date. Simple and predictable.
- Net 30 EOM — 30 days from the end of the invoice month. An invoice dated 5 August is due 30 September rather than 4 September.
- MFI (month following invoice) — due on a fixed day of the next month, such as "15 MFI". Common where a supplier bills continuously and the customer runs one payment run a month.
- Due on receipt — immediately, which in practice means the next payment run.
EOM is where the money quietly moves. Invoicing on 5 August under net 30 EOM gives the customer 56 days of credit; invoicing on 28 August gives 33. Same terms, same customer, 23 days apart — and the supplier controls the invoice date.
The practical implication for a supplier on EOM terms is to invoice as late in the month as the work allows, since the due date barely moves while the wait shortens.
What an early-payment discount really costs
"2/10 net 30" means 2% off if paid within 10 days, otherwise the full amount at 30 days. It reads like a small courtesy and it is expensive credit.
Giving up 2% to be paid 20 days sooner is a return of 2/98 = 2.04% over those 20 days. There are 18.25 such periods in a year, so the simple annualised rate is 37.24% — 44.59% if compounded.
Both sides of that are worth stating plainly:
- As the supplier, offering 2/10 net 30 is borrowing at 37% a year. If your overdraft costs 10%, factoring your invoices is cheaper, and simply asking for shorter terms is cheaper still.
- As the customer, declining the discount is borrowing at 37% a year. Almost any facility beats that, so taking the discount is nearly always correct when the cash exists.
The rate is very sensitive to the window rather than the percentage. 2/10 net 60 gives 14.90%, because the same 2% buys 50 days instead of 20.
Late payment
Interest on overdue invoices is worth charging and rarely worth relying on. Many jurisdictions give suppliers a statutory right to interest and a fixed recovery cost on late commercial payments, whether or not the contract mentions it — the rates and rules differ, so check what applies where you trade.
In practice the deterrent value exceeds the collection value. An invoice that states the interest rate and applies it consistently gets paid sooner than one that does not, and the amount actually recovered is usually small.
Small things that move the due date
- Payment runs. Many customers pay weekly or monthly on fixed days, so an invoice due on the 3rd may be paid on the 15th regardless of terms. Knowing the run date is more useful than the terms.
- Receipt, not issue. Some contracts count from the date the invoice is received or approved, which can add a week that nobody records.
- Weekends and holidays. A due date on a Sunday is usually paid the next working day, which this tool flags rather than adjusts, since the convention varies by contract.
