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What is the journal entry when invoices are paid in a payment run? What is the difference between a manual payment and a scheduled payment run? What is a payment file and how is it sent to the bank securely? How are invoices selected and prioritized in a payment run? What controls should surround a payment run to prevent errors and fraud? What is a payment proposal (pre-run) and how is it reviewed? How are supplier credits and deductions applied within a payment run? What is the difference between ACH, wire, and check payments in terms of risk and cost? How does a purchasing card (P-card) program change AP payment processing? What is a virtual card and why do companies use it for payments?
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How does an early-payment discount decision get evaluated?

Intermediate

Answer

Compare the discount's annualized return to the company's cost of capital or short-term borrowing rate. Terms like 2/10 Net 30 give ~36% annualized (2% for paying 20 days early), usually well above financing cost, so taking it is worthwhile if cash allows. If cash is scarce and borrowing costs exceed the return, forgo it.
2/10 Net 30 annualized:
  = (discount % / (100% - discount %)) x (365 / (pay period - discount period))
  = (2 / 98) x (365 / 20) ~= 37.2% annualized.
Real-world example Treasury takes 2/10 Net 30 discounts because 37% annualized far exceeds its 6% borrowing cost.

Common follow-ups: What's the formula to annualize a discount? | When should you skip a discount?

Vendor Management Credit Control Payment Runs
All 21 Payment Runs questions