Trade Credit vs Bank Borrowing Cost Calculator
Is it more profitable to forego a supplier’s cash discount (e.g. 2% in 10 days) or borrow from a bank Cash Credit facility to capture the discount?
Financial Inputs
Gross billed invoice amount payable to supplier.
Discount granted if settled within the early payment window.
Cut-off day to claim the early payment cash discount.
Normal due date if the cash discount is not claimed.
Interest rate charged on your commercial bank credit facility.
Net Profit from Borrowing to Take Discount
Against a supplier invoice of ₹50 Lakh on terms "2% / 10 net 30":
Annual Cost of Passing Up Discount (Trade Credit APR)
37.24
Total Cash Discount Captured
1,00,000
Bank Borrowing Interest Incurred
28,192
Key Financial Takeaways
- Against a supplier invoice of ₹50 Lakh on terms "2% / 10 net 30":
- Foregoing the supplier's 2% cash discount carries an implicit annualized trade credit borrowing cost of 37.24% p.a.
- RECOMMENDATION: Borrow ₹49 Lakh from your bank Cash Credit facility at 10.5% p.a. to pay on Day 10. Bank interest for 20 days is only ₹28.19K, yielding a NET PROFIT of ₹71.81 Thousand per invoice.
Frequently Asked Questions
Why is foregoing a 2% cash discount (2/10 net 30) so expensive?
A 2% discount for paying 20 days early represents a 2.04% fee for just 20 days of credit. Annualized over 365 days, this equals an astounding 37.24% APR! Foregoing this discount is equivalent to borrowing money at 37% p.a.
What is the golden rule for trade credit cash discounts?
Always borrow from your bank Cash Credit or overdraft facility (at 10%–11% p.a.) to capture early payment discounts whenever the supplier’s implicit Trade Credit APR exceeds your bank borrowing rate.
Calculators on this platform provide indicative mathematical estimations based on industry-standard financial appraisal models (including Tandon Committee Method II, Nayak Turnover Method, and standard compound amortisation).
They do not constitute a formal facility sanction, credit commitment, or legal advisory from SME PAISA or any partner banking/NBFC institution. Final terms, interest margins, security stipulations, and credit sanctions remain strictly subject to formal credit appraisal, audited balance sheet verification, CMA Data assessment, and risk committee approval by institutional lenders.
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