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.

Image Credit To :- https://corporatefinanceinstitute.com/

How to Calculate 2/10 Net 30

Take a look at this example to determine how much the credit customer pays:

Invoice full amount: $1,000

Invoice date: September 1

Invoice due date:  30 days

Payment terms: 2/10 net 30

Discount period: 10 days

Begin counting the days from the day after the invoice date.

The quick formula is 100% -discount % x invoice amount

100%-2%= 98% x $1,000 = $980

Date of Invoice Payment: September 1 through September 11 Number of Days Before Paying: 0-10 Discount 2% – Discount Amount $20 Payment Amount Due $980

Date of Invoice Payment: September 12 through October 11 Number of Days Before Paying 11-30 Discount 0% Discount Amount $0 Payment Amount Due: $1,000.

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.