Hi Anesh,

The interest rate currently paid by customers is the cost of not taking a discount. The formula is:

(Discount % / 1-Discount %) x [Days in year / (collection period - discount period)]

This would be (.01/.99) x (360/50) = .072727273 or 7.27 %

If the prime rate were anything greater than this, many customers would not have a big enough incentive to take the discount because they are still paying less interest than the prime rate without taking the discount. If the prime rate were 2,5,or 7% the customer would want to take the discount in order to lower the amount of interest paid above the prime rate. Hope this helps.

Regards,

Aaron Copeland