See Also:

2/10 Net 30 Example

Credit Sales

Letter of Credit

Line of Credit (Bank Line)

Net 30 Credit Terms

5 C’s of Credit (5 C’s of Banking)

# 2/10 net 30 Definition

2/10 net 30, defined as the trade credit in which clients can opt to either receive a 2 percent discount for payment to a vendor within 10 days or pay the full amount (net) of their accounts payable in 30 days, is extremely common in business to business sales. Anywhere a vendor offers credit terms it is likely that they also offer some discount to motivate early payment.

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## 2/10 net 30 Meaning

2/10 net 30 means a discount for payment within 10 days. The purpose of this is to shorten accounts receivable cycles for those who provide credit terms. This is essential when vendors have accounts receivable turnover cycles which exist longer than preferred. A business that offers a 2/10 net 30 discount is expressing that it is more important to have cash as quickly as possible than it is to have the full amount of their payable. The fact that lack of cash is one of the main reasons businesses fail makes these terms commonplace. Businesses love to offer 2/10 net 30 for 2 reasons: it makes customers happy while speeding up cash cycles.

Variations on this method include 2/10 net 40, 2/10 net 45, 2/10 net 60, 2/10 n 30 EOM (end of month), and more. These terms may also be referred to in a variety of terms: 2/10 n 45, 2/10 n 60, 2/10 days net 30, 2 percent 10 net 30 days.

The 2/10 net 30 discount makes no statement on the payment of bills beyond 30 days. Vendors may or may not have a late payment penalty for such customers. It is up to the discretion of the purchasor to decide the best method of closing accounts payable when 2/10 n 30 is available.

2/10 n 30 journal entries vary depending on the accounting method used. LIFO vs FIFO, accounting vs economic income, and many other matters make 2/10 n 30 accounting somewhat complicated. Strong company policies must be in place to ensure smooth bookkeeping.

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### 2/10 net 30 Formula

There is no single 2/10 net 30 formula. Despite this, 2/10 net 30 interest rate equations can often fall into this model:

If paid within 10 days:

Invoice Amount X 98% = 2/10 net 30 effective interest rate

If paid within 30 days:

Pay the invoice in full

### 2/10 net 30 Calculation

2/10 net 30 calculations are quite simple once understood fully.

The invoice amount is $10,000 and 2/10 net 30 accounting is in place.

If paid within 10 days:

$10,000 X 98% = $9,800 due with in 10 days

If paid within 30 days:

$10,000 is due

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if paid within 15 days,

Hey there — If a payable on 2/10 net 30 terms is paid in 15 days, there is no discount because it is greater than the 10 day limit for receiving the 2% discount. So the full amount would be due.

yeh u r right

question

as paying party When does this period its star counting at the time on invoice created or at the goods received?

After the goods are shipped (not received) or service is completed.

Hey there,

I agree that you will be getting no trade discount if paid within 15 days but looking at it closely it makes no sense to pay on 15th day since you are already not getting discount so you should better keep that money till 30th day and deploy in some other income bearing assets.

as paying party When does this period its star counting at the time on invoice created or at the goods received?

What if paid after 30 days like after 32 days??

Then that would be another topic – late fees. The 2/10 net 30 is pay it early – get a reward (2% savings). Now you’re paying it late – get a penalty, 2% fee perhaps? Realizing a 4% difference between paid early and late may be a motivator to some companies.

$1,000 bill paid early = $980

$1,000 bill paid late = $1,020

You have purchased a home theatre package for $4,300 on credit. The company you purchased from offers you 1/7, net 30 days. What is the implied interest rate if you do not take up the discount?

can any one solve this plzz///

Since you did not take the offer, you pay the invoiced amount of $4,300.00 only

Sweet. I definitely want to test this.

Hi can I ask you some question please

question 1. on May 1,2005 , BBD drug store purchased $54,000of sanitary product from AFCO sanitary product share company , terms 2/10,n/eom.on may 5,2005 Discovered and returned $10,000 of defective goods and on that date received credit memo from seller.BBD settled the outstanding balance in full on may 11,2005.

So, how can we record or can this person get discount or not ?

If I offer 2% discount, when should the payment be made? I have customers writing the check and dating it on the 10th day but I often don’t receive payment until 13 or 14 days from the discount day. Is this common practice?

Have the same thing, would like to know as well!

a contractor has purchased supplies for a supplier for 3,750.00 on november 1st. the invoice has a 2/10 net 30. if the contractor pays for the supplies on november 9th what would be the cost for the supplies?

Aparna… The stated discount rate of 2% is a nominal rate. The effective discount rate is: stated discount rate/(1-stated discount rate). On 2/10, net 30 terms the effective discount rate is 2%/(1-2%) or 2.0408%. An example helps here. Assume the invoice is for $100, which means that you can pay $98 through day 10 or $100 on day 30. If we think of the discount as a cost of borrowing rather than an incentive to pay early, the $98 net invoice represents the amount borrowed and the $2 represents the cost of borrowing. Thus, $2/$98 = 2.0408%.

Confusion arises as to how to represent the implied rate as an annualized rate. The traditional analysis divides the 30 day term into a 10 day period of free credit and a 20 day period of costly credit. Ignoring the period of free credit, it follows that there are 18 (360/20) costly credit periods in a 30/360 day year. The implied 20 day rate of 2.0408% can be expressed as an APR (annual percentage rate) of 36.734% (2.040 x 18) or as an AER (annual effective rate) of 43.865% ((1+2.0408%)^18-1)).

But, should you ignore the period of free credit? If you rent an apartment for $980 a month if you pay by the 10th, but $1,000 if you pay by the 30th, and you choose to pay on the 30th, your rental cost is $1,000 for the entire month. Analogously, if we treat the 2.0408% implied rate on 2/10, net 30 as relating to the entire 30 day period, then there are only 12 (360/30), 30 day periods in a year and so the APR is 24.489% (2.0408% x 360/30) and the AER is ((1+2.0408%)^12-1)).

Suffice it to say, in either case, that if you cannot take advantage of the free credit, then you are probably better off negotiating a line of credit with the bank. This becomes increasingly important as your average level of outstanding trade credit rises.

Hope this helps,

This was quite possibly the most helpful explanation I’ve ever seen for this. Thank you

Hi, could you please assist me with the below question?

I’ve been doing research and I can’t seem to get the correct answer.

Calculate the cost to a firm foregoing the following cash discount: 4/10 net 30 EOM, assuming a 360-day year.

1. 48%

2. 60%

3. 72%

4. 75%