Definition: 2 10, Net 30 is a cash discount term where customers have 30 days to pay for a purchase but can receive a two percent discount if the entire purchase paid in full within ten days.
What Does 2/10, Net 30 Mean?
What is the definition of 2/10, net 30 credit terms? This is the cash discount terms for a credit transaction. 2/10 represents a 2 percent discount when payment is made to the supplier within 10 days of the credit sale. N30 or Net 30 represents the other option to pay the amount due in full within 30 days. The goal of 2/10 is to encourage early payment for credit sales.
A consistent credit turnover is difficult to maintain in business. Sales managers and individual vendors prefer giving some form of discount to encourage their customers to pay early rather than have the entire amount stuck in collections. This is particularly important because suppliers have to pay for the inventory up front often times before they make a sale to the customer. Thus, the supplier is out of the money used to pay for the inventory and out of the inventory that was sold to the customer. Suppliers need to keep a consistent flow of cash in order to reorder stock or production materials and pay for other operating expenses.
Let’s take a look at an example.
Example
Scott retails most well-known rice brands in his warehouse at Bell County. He offers credit facilities for bulk purchases with 2/10 net 30 terms. Tim’s credit purchase invoice amount is $15,000 on January 1. Scott then explains his repayment options under the principle as follows:
Total amount due if paid in full before January 11: $14,700 ($15,000 x .98)
Total amount due if paid in full between January 11 and January 31: $15,000
Total balance is due before January 31.
Tim, knowing that paying within 10 days saves him $300, makes payment on January 5. Thus, Scott has effectively encouraged Tim to pay for his products early.
It must be noted however, that these terms can be adjusted to suit the supplier. Some suppliers may choose to offer larger discounts or longer discount period, but the objective of encouraging early payment remains unchanged.
Summary Definition
Define 2/10, N30: 2 10 Net 30 means customers have 30 days to pay for an item purchased on credit but can get a 2 percent discount if they pay for the item within 10 days.
