When a supplier offers a credit customer an early-payment discount of 2% for paying an invoice in 10 days instead of paying the full amount in 30 days, the supplier is giving up 2% of the invoice amount in order to be paid 20 days early. To compute the rate per annum we multiply both the "2%" and the "20 days" by 18 (in order to get close to the 365 days in a year). Hence, the per annum rate is approximately 36%. To test this, let's assume that the invoice amount was $1,000 and the supplier states that the customer may deduct 36% per annum if the invoice is paid 20 days before the due date. The calculation will be $1,000 X 36% per annum X 20 days/360 days per year = $20. This amount agrees with the early-payment discount expressed as 2% of the $1,000 invoice amount.
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