Early suppliers' payment discounts of 2% is an annualized return of 37%

Suppose your distributor offers a 2% discount to the shop that pays its invoices within 10 days; otherwise, the full amount is due within 30 days. This type of discount is usually called a 2%/10.30 net clause. By processing the invoice within 10 days, you give up your cash for 20 days in return for a 2% discount. This 2% return over 20 days is very high; it translates into an annualized return of 37%. Whereas a 1%/10.30 net clause offers an annualized return of 18%.