Maintaining sufficient liquidity is vital to running a healthy business. To some, that means holding onto cash as long as possible — until or even after payment is due on supplier invoices. But as the AFP Payments Guide: Optimizing DPO: A Strategic Approach to Working Capital, underwritten by Wells Fargo, explains, maximizing DPO does not optimize it. Sometimes, the value of an early payment discount more than offsets the benefit of holding onto cash longer.

What Is an Early Payment Discount?

An early payment discount, often around 2%, is a price reduction a supplier offers in return for payment before the due date. In B2B commerce, the most frequently offered term is “2/10 net 30,” which means that the buyer can take a 2% discount if the bill is paid within 10 days of the invoice date. If the buyer chooses not to take the discount, payment must be made in 30 days.

Common Discount Terms

While 2/10 net 30 is the most common, suppliers may offer a variety of discount terms depending on their cash flow, standard industry practices and negotiated agreements. Other structures include 1/10 net 30, 2/15 net 45 and 3/10 net 60. Buyers with leverage may negotiate custom terms for specific supplier relationships; examples include a tiered discount, where faster payment garners larger discounts, or a discount applied only to specific categories.

Another approach is dynamic discounting, in which the discount increases the earlier the buyer pays. Paying on Day 3 can earn a higher discount than paying on Day 9, for example. Rather than appearing on the invoice, these discounts are typically available through the buyer’s platform or a supply-chain finance program.

Why and When to Take a Discount

Buyers may turn down early payment discounts to hold onto cash longer, but doing so can mean giving up substantial savings over time. To quantify the opportunity, calculate the annualized return from taking the discount:

"Discount return"=d/(1-d)×365/(N-t)

Where:

• d is the discount percentage
• t is the early-payment deadline
• N is the normal due date

Thus, 2/10 net 30 produces an annualized return of roughly 37% — typically far more than the return on idle cash or the interest saved by paying down a line of credit. This does not mean that the buyer earns 37% on the invoice; rather, 37% is the annualized economic value of receiving 2% in exchange for paying 20 days sooner.

Paying early also strengthens vendor relationships by improving their cash flow and building trust. A company that pays early may even become a preferred buyer that receives better pricing and service.

In most cases, businesses should capture available discounts when forecasted liquidity comfortably supports early payment and AP can process invoices within the discount window. Forgoing a discount is economically equivalent to paying a high implied financing cost for the additional time to pay.

A Strategic Approach

Taking early payment discounts should involve both AP and treasury because the decision is ultimately one of capital allocation, not just AP operations. Based on current and forecasted cash flows and the cost of capital, the two teams can determine which invoices to pay early. Together, they can track and continuously improve the main metric in early payment strategy: the percentage of discounts captured, or the discount capture rate.

Technology to Support Early Payment

Many tools are available to make early payment decisions faster, easier and smarter. Companies should start by automating AP, which can accelerate invoice processing by 82%, according to a 2025 report by Ardent Partners. Automation can also dramatically increase discount capture: According to PayStream Advisors, organizations with manual processes usually capture 20-40% of available discounts, while companies with automated processes often capture over 80%. (For more on AP automation, see the AFP Financial Operations Guide: Automating Accounts Payable Processing.)

Then businesses can add AI-enabled solutions that facilitate and optimize early payment strategies, such as:

1. Document AI and intelligent invoice capture. OCR, natural-language processing and machine-learning classification can extract payment terms from unstructured invoices, identify terms like “1/15 net 45” and flag discrepancies among invoices, purchase orders, contracts and supplier master data. Earlier capture gives AP more time to evaluate and act on discount opportunities.
2. Automated term-discount calculation. Rules engines and AI-assisted extraction can calculate deadlines and discount values, conduct payment-value analyses and rank opportunities.
3. Machine-learning cash forecasts. These models learn from historical collection behavior, payroll cycles, seasonality, payment patterns and forecast-versus-actual variances.

Future tools may include a controlled AP-treasury decision agent — an AI layer operating across the ERP, AP platform, treasury management system, bank feeds, supplier network and policy engine. Such an agent could continuously evaluate available discounts against liquidity forecasts, borrowing costs and corporate payment policies, then recommend — or eventually execute — the optimal payment date.

Capturing the Return

Optimizing DPO does not always mean paying as late as possible. When the implied return on an early payment discount exceeds the financial benefit of holding onto the cash — and liquidity remains sufficient — paying sooner can be the better working-capital decision. With accurate cash forecasts, efficient AP processes and close coordination between AP and treasury, companies can capture those opportunities without compromising liquidity.

AFP Dynamic Invoice Discount & Cost of Capital Analyzer Excel Template

Not every early payment discount is worth taking. Fill out the form below to download a complimentary Excel template that helps you compare supplier discount offers against your company's cost of capital, estimate the net economic benefit of paying early and identify when taking the discount creates value.