A firm offers its customers 3/5 net 25. what is the cost of trade credit to a customer who chooses to pay on day 25?

Here is the formula to calculate the cost of not taking the discount:

Discount Percentage : (1-Discount %) x [360 / (Full allowed payment days - Discount days) ]

Divide the discount percentage, 3%, by (100% - 3%), the difference of 100% minus the 3% discount percentage. This equals 3.09%.

Divide 360 - - nominal days in a year - - by the sum of full allowed payment days (25 days) minus allowed discount days (5 days). This equals 18

Multiply the result of 3.09% by 18. This equals 55.62%, the real annual interest rate charged.