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Define the two alternatives before annualising
The U.S. Treasury offers a discount-comparison calculator for government buyers. Its agency context, government funds rate and displayed examples are not a private seller’s borrowing terms. The figures and 365-day convention below are an original ELN comparison.
Confirm the actual invoice, discount, payment dates and whether the customer will pay early. If borrowing is the alternative, obtain the amount available, interest method, fees, conditions and repayment date. A loan illustration is not evidence of approved funds.
US$1,000 buys twenty days of earlier cash
Fictional U.S.-dollar example: a US$50,000 invoice would otherwise be paid on day 30. A proposed 2% discount produces US$49,000 on day 10. Assume the customer actually honours those dates. The supplier gives up US$1,000 to bring US$49,000 forward by 20 days.
For comparison only, suppose an available loan supplied the same US$49,000 for 20 days at a simple 12% annual rate using 365 days, plus a US$120 fee.
| Original comparison | US$ |
|---|---|
| Invoice amount forgone through the discount | 1,000.00 |
| Hypothetical interest: 49,000 × 12% × 20 ÷ 365 | 322.19 |
| Plus hypothetical fee | 120.00 |
| Specified borrowing cost | 442.19 |
| Difference from US$1,000 discount cost | 557.81 |
Use an annual equivalent only with its assumptions
A simple annual equivalent for the discount is 1,000 divided by 49,000, multiplied by 365 divided by 20: about 37.2%. It is a comparison of this assumed cash amount and period, not a quoted APR, a compounded return or a recommended finance rate.
The US$442.19 borrowing figure excludes any other fees or consequences. If the invoice arrives late, the loan may remain outstanding longer. Different security, default, recourse and repayment terms can matter more than the headline rate; check the actual offer rather than declaring the cheaper illustration available.
Keep funding need and the price of funding distinct
Ask management why earlier cash is needed, what payment must be met and which alternatives are actually confirmed. Losing a discount, paying a supplier late and accepting extra borrowing obligations are different choices with their own actual terms. Do not assume a positive annual operating model removes a near-term cash need.
Keep this period-specific comparison separately. Use the wider Cash runway model for supported monthly amounts, without treating it as a loan-pricing or discount calculator. The decision needs actual dates, available options and the full effect on the business.
Scope
- All invoice terms, rates, fees and dates are fictional. No normal discount, current loan rate, approved credit, government payment entitlement, APR disclosure or recommendation to borrow is supplied.
Next step
Compare the same accelerated cash amount and period using actual discount and financing terms, resolve availability and consequences, and keep the pricing calculation beside the wider cash plan.
Sources & review notes
U.S. Treasury — Bureau of the Fiscal Service
Passage, dates and research notes
official-guidance · Discount comparison principle; government-buyer context
Read the calculator explanation. Do not apply agency payment rules, the displayed government rate or its inconsistent example to a private contract. ELN uses its own stated period and year basis.
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