---
title: "Paying early, on time or late: AP and cash"
description: "The $18,000 drill bill paid on day 10, 30, 45 and 60: the discount is worth $321.34, and lateness costs more than the cash it keeps."
canonical: "https://lopifi.com/learn/paying-early-on-time-or-late"
---

# Paying early, on time or late: AP and cash

> The $18,000 drill bill paid on day 10, 30, 45 and 60: the discount is worth $321.34, and lateness costs more than the cash it keeps.

Source: https://lopifi.com/learn/paying-early-on-time-or-late
Part of: Lopifi — Planned: US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

---

**Is it smart to pay vendors late to save cash, and when does paying early make sense?** The $18,000 drill bill paid on day 10, 30, 45 and 60: the discount is worth $321.34, and lateness costs more than the cash it keeps.

Trade credit is the cheapest-looking money a startup can get: the vendor ships now and takes payment in 30 days. Using the whole term is fair, because the vendor agreed to it. Paying later than the term is something else. It is borrowing from a vendor that did not agree to lend, at a price the contract may set. The two earlier lessons gave the formulas: the cost of [skipping a discount](https://lopifi.com/md/learn/payment-terms-and-early-payment-discounts) and the way [DPO](https://lopifi.com/md/learn/ap-aging-and-days-payable-outstanding) misleads. This one puts payment days side by side.

The facts: the $18,000 drill bill on 2/10 net 30, idle cash earning 4% a year, and a vendor whose contract adds a late fee of 1.5% for each month or part of a month. Only the contract says what a vendor charges. This one is assumed, to show the shape of the trade. Each row is what paying on that day is worth against paying on the due date.

| Day paid | Where it falls | Worth vs day 30 |
| --- | --- | --- |
| 10 | Inside the 2% window | 321.34 |
| 30 | On the due date | 0 |
| 45 | 15 days late | (240.41) |
| 60 | 30 days late | (210.82) |

Paying on each day, against paying on day 30. A negative figure is a cost.

Inside the window the discount wins by a wide margin: $360 off, less the interest on the cash that left 20 days early. Between the window and the due date paying early gives away interest for nothing. After the due date, the cash earns a little and the late fee takes far more. Holding $18,000 for 15 days at 4% earns $29.59. The fee clause costs $270.

> **The arithmetic.** [Float](https://lopifi.com/md/glossary/payment-float) is amount × yield × days ÷ 365. A late fee is amount × monthly rate × months or part of a month. $18,000 × 4% × 15 ÷ 365 = $29.59, against $18,000 × 1.5% = $270. Cash earns pennies on the days it is held, and lateness costs dollars.

**Take the discount**
- Pro: The best return available on the cash
- Pro: $360 off the cost of the drills
- Con: $17,640 leaves 20 days early
- Best for: A startup holding cash from a round

**Pay on the due date**
- Pro: Full use of the term
- Pro: The vendor keeps extending credit
- Con: Needs a calendar, and the payment run has to run on time
- Best for: Almost every bill

**Negotiate longer terms**
- Pro: Cash stays in the bank without a fee or a hard feeling
- Con: The vendor may want something back: volume, autopay, a deposit
- Best for: A volume buyer with a good record

**Pay late and hope**
- Pro: Cash stays in the bank a little longer
- Con: Late fees, a credit hold or a demand for cash up front
- Con: A vendor that stops answering when something is wrong with an order
- Best for: No one

Four ways to manage the vendor's side of the cash.

**Scenario — Short of cash the week a bill is due.** On October 3, 2026 the $6,000 left on the drill bill is due, and Northwind's cash is thin that week. A silent 14-day delay saves $9.21 of interest and risks the fee, the hold and the vendor's goodwill. A call before the due date asking for 14 more days, confirmed by email, costs nothing and often works. The value of the extension is relief in a cash crunch, not interest, so ask when you are short and do not build a plan on it.

1. **See what is coming.** List what is due in the next 7, 14 and 30 days, and the cash available after payroll and taxes.
2. **Take the discounts that expire.** Discounts that close before the next run come first, because they are worth the most per day.
3. **Rank the remainder.** Pay the rest on the due date. If cash does not cover it, rank by what hurts most to miss: payroll, taxes, rent, then a vendor you cannot replace.
4. **Talk to the vendor first.** For anything that will be late, call before the due date and put the new date in writing.
5. **Release and forecast.** Release the run, see the balance it leaves, and update the forecast with what was actually paid.

The weekly cash-requirements routine.

> **Tip.** **Ask for the terms you want, in writing, before the bill is due,** not after it is late. A vendor that agrees to Net 45 is not being stretched. **Schedule payments for the due date,** so cash is not released the day a bill is approved. **Never stretch payroll taxes.** The tax withheld from wages is held in trust for the government, not a vendor payable, and missing a deposit carries its own [penalty](https://lopifi.com/md/glossary/trust-fund-recovery-penalty).

> **Watch for.** A discount missed by days. Read whether the window runs to the day you send the payment or the day the vendor receives it, and remember that a check mailed on day 10 may arrive on day 13. Contracts differ, and the contract is the authority on this.

**Exercise — Pick the day to pay the drill bill.** The drill bill on 2/10 net 30, with a vendor whose contract adds a late fee of 1.5% for each month or part of a month. Idle cash earns 4% a year. For each payment day, work out what it is worth against paying on day 30: a discount taken counts for you, interest on cash paid out early counts against, and interest earned by paying late is set against the late fee. Within five cents is right. Type it in the workbook at https://lopifi.com/playground.

> **The vendor's term is Northwind's to use in full, and past it the cash earns pennies while the fee costs dollars.**

## Where this lesson's rules come from

- [Wikipedia, “Net D”](https://en.wikipedia.org/wiki/Net_D) — Net D — payment terms (reference)
- [Wikipedia, “Days payable outstanding”](https://en.wikipedia.org/wiki/Days_payable_outstanding) — Days payable outstanding (reference)
- [ASC 405](https://asc.fasb.org/405/tableOfContent) — Liabilities (codification)

## Read further

- https://lopifi.com/md/calculators/dpo
- https://lopifi.com/md/calculators/cash-conversion-cycle
- https://lopifi.com/md/differences/dso-vs-dpo
- https://lopifi.com/md/startups/vendor-payment-terms-and-early-pay-discounts
- https://lopifi.com/md/startups/payment-terms-net-30-explained
- https://lopifi.com/md/tools/terms
- https://lopifi.com/md/docs/domain/procure-to-pay
- https://lopifi.com/md/docs/domain/cash-and-treasury

- **Track:** [Accounts payable](https://lopifi.com/md/learn/ap)
- **Lesson:** Lesson 14 of 21 — 9 min
- **Terms taught:** [DPO](https://lopifi.com/md/glossary/dpo), [CCC](https://lopifi.com/md/glossary/ccc), [Payment terms](https://lopifi.com/md/glossary/payment-terms), [Early-payment discount](https://lopifi.com/md/glossary/early-payment-discount), [Working capital](https://lopifi.com/md/glossary/working-capital), [Payment run](https://lopifi.com/md/glossary/payment-run), [Trust fund recovery penalty](https://lopifi.com/md/glossary/trust-fund-recovery-penalty), [Payment float](https://lopifi.com/md/glossary/payment-float)
- **Previous:** [The month-end AP close checklist, AP · Lesson 13](https://lopifi.com/md/learn/month-end-ap-close-checklist)
- **Next:** [Expense policy: who spends, who approves, what proof, AP · Lesson 15](https://lopifi.com/md/learn/expense-policy-and-approvals)
- **The course:** https://lopifi.com/md/learn