Early settlement discount appraisal

For a seller, compare the cost of discounts on the relevant sales with reduced receivables financing, changed bad debts, administration and any contribution effects. For a buyer, compare the discount obtained with the cost of paying earlier and any cash constraints. The annualised cost of forgoing a discount depends on the extra credit period, not the full invoice term. A common simple annualisation is d/(1 − d) × days in year/extra days, while an effective annual rate compounds the periodic cost. State the convention required.