FIN.3:4.4 - Price supplier terms on the amounts and dates they change

An agreed longer payment term provides financing until the revised due date. Simply paying late may instead create penalties, stop supply or require cash in advance later. Include those consequences and the supplier’s willingness or contractual right to offer the term. A reduction in purchase price tied to earlier payment is a separate alternative with its own cash need.

For a discount fraction d available on an invoice amount F at an earlier date, the early payment is F(1 − d). Forgoing it retains that amount for the extra days and costs Fd at the later date. The extra-period financing rate is therefore d/(1 − d), not d. For a comparison using an effective annual convention and a year of Y days, the mechanically annualized rate is (1/(1 − d))^(Y/Δdays) − 1, where Δdays is the difference between the two payment dates. State the convention. That number imagines repeated equivalent periods; it is not the currency cost of this one invoice or proof that borrowing is obtainable.

Compare the actual early-payment funding schedule with the later invoice payment. Include the loan’s net proceeds, interest, fees and conditions, then test the dates in FIN.2. If finance is rationed, consuming scarce capacity to earn a discount can displace a better use. The high implied annual rate of a forgone discount is a useful signal, but a short period, small amount or uncertain supply can make currency amounts and operational consequences more decision-relevant.