2/10 net 30

Definition

2/10 net 30 is a trade credit term that specifies the payment discount and due date for an invoice. It means that if the invoice is paid within 10 days, the customer receives a 2% discount on the total amount. However, if the invoice is not paid within 10 days, the full amount is due within 30 days of the invoice date.

5 Must Know Facts For Your Next Test

1. The 2/10 in the term refers to the 2% discount the customer receives if they pay the invoice within 10 days.
2. The net 30 portion of the term means that the full invoice amount is due within 30 days of the invoice date if the customer does not take the 2% discount.
3. 2/10 net 30 is a common trade credit term used to encourage prompt payment from customers and improve a company's cash flow.
4. The discount and due date terms are negotiated between the seller and the buyer, and can vary depending on industry and business relationships.
5. Offering a payment discount can be a strategic decision for a company to balance the cost of the discount with the benefits of improved cash flow and reduced bad debt.

Review Questions

• Explain how the 2/10 net 30 term benefits the seller in a trade credit arrangement.
  • The 2/10 net 30 term benefits the seller by encouraging prompt payment from the customer. If the customer pays the invoice within 10 days, the seller receives a 2% discount on the total amount, which can improve the seller's cash flow and reduce the cost of extending credit. Even if the customer does not take the discount, the seller still receives the full invoice amount within 30 days, which is faster than a typical net 30 or net 60 arrangement. This helps the seller manage their accounts receivable and reduces the risk of bad debt.
• Describe how the 2/10 net 30 term affects the buyer's decision-making process when making a purchase.
  • The 2/10 net 30 term can influence the buyer's decision-making process in several ways. First, the 2% discount for early payment can be an incentive for the buyer to pay the invoice promptly, as it represents a potential cost savings. However, the buyer must also consider the opportunity cost of tying up their capital for 10 days to take advantage of the discount, versus keeping the funds available for other business needs. Additionally, the 30-day net term provides the buyer with a grace period to manage their cash flow and make the payment, which can be important for smaller or growing businesses with limited resources.
• Evaluate the potential impact of the 2/10 net 30 term on a company's overall receivables management strategy.
  • The 2/10 net 30 term can be a significant component of a company's overall receivables management strategy. By offering a payment discount, the company can incentivize customers to pay invoices more quickly, which can improve the company's cash flow and reduce the risk of bad debt. However, the company must also consider the cost of the discount and the potential impact on profit margins. Additionally, the 30-day net term provides a balance between encouraging prompt payment and allowing customers some flexibility in managing their own cash flow. Ultimately, the 2/10 net 30 term should be evaluated in the context of the company's broader receivables management goals, customer relationships, and industry practices to determine its optimal implementation.

Related terms

Trade Credit: A commercial credit arrangement where a business allows another business to purchase goods or services and pay for them at a later date, often with the option of a discount for early payment.

Payment Discount: A reduction in the total amount owed on an invoice if the customer pays the invoice within a specified time period, typically to encourage prompt payment.

Net 30: A payment term that requires the full invoice amount to be paid within 30 days of the invoice date, with no discount for early payment.