13 Apr 2/10 N 30
What is 2/10 N 30?
Definition: 2/10 N 30 or 2/10 net 30 is a term that is used in business to business credit sales. It signifies the discount of 2% that a buyer is entitled to if payment is made within 10 days of the invoice being raised. In the event that the amount is not paid within 10 days, the net or full amount is required to be paid within 30 days.
What does 2/10 N 30 mean?
The expanded form of 2/10 N 30 is:
2: the 2% discount that the buyer can receive.
10: the number of days from the invoice date within which payment has to be made to obtain the 2% discount.
N: net or full amount. If payment is made after 10 days, the net or full amount will have to be paid.
30: the maximum credit period that the buyer is entitled to.
Given a choice, every business would like to receive cash in exchange for the goods that they sell or the services that they provide. But in a competitive environment, that’s simply not possible.
Many firms have to offer credit in an effort to boost sales. However, it is important that they receive their money as soon as possible.
A method that businesses use to get their money as quickly as they can after a credit sale is made is to offer a 2/10 N 30 cash discount.
According to these terms, the buyer has two options:
- Option 1 – pay 98% of the invoice amount within 10 days of the sale.
- Option 2 – if payment is not made within 10 days, the buyer can pay withinin another 20 days. That’s a total of 30 days from the invoice date. But in this case, the entire invoice amount will have to be paid.
2/10 N 30 can provide great benefit to both the buyer and the seller. The buyer gets a 2% discount on the invoice value while the seller receives money soon after the sale.
Example of 2/10 N 30
Norton-Haynes, an industrial goods manufacturer, supplies equipment to business customers. The invoices that it raises range in value from $15,000 to $50,000. As it operates in an extremely competitive market, it offers credit terms to its clients.
But lately, Norton-Haynes has been experiencing cash flow problems. Its receivables are mounting and it is having difficulty in raising additional money from its bankers.
At the suggestion of its finance manager, the sales team introduces 2/10 N 30 invoice terms. In the following weeks, each of the company’s customers is informed about this change in the credit policy.
2/10 N 30 proves to be a great success. About 40% of Norton-Haynes’ clients opt to receive the 2% discount by paying within 10 days of the invoice being raised. The company’s cash position sees an immediate improvement.
An additional benefit for Norton-Haynes is that it sees an increase in sales as several customers switch over from the competition as a result of the new credit terms.
2/10 N 30 is a method of offering a cash discount to a company’s clients in an effort to get them to pay early. A discount of 2% is given if payment is made within 10 days. But if payment is made between 10 and 30 days of the invoice date, the net invoice amount has to be paid.