Terms like 2/10 net 30 mean the customer can take 2% off if they pay within 10 days; otherwise the full amount is due in 30.
The cost of offering it
Giving up 2% to be paid 20 days sooner is like paying a very high yearly interest rate for that money. Compare it with what other ways of getting cash faster, like factoring or a credit line, would cost.
When it makes sense
- Cash is tight and the faster payment avoids a costlier problem.
- Collecting from that customer is usually slow or uncertain.
- The discount replaces a fee you would pay anyway.
When a supplier offers it to you
If you have the cash, taking the discount is usually a strong return on that money.
Our early payment discount calculator shows the yearly cost of the discount.
General information, not financial advice.
This article is general information, not legal, tax or regulatory advice. Rules change; confirm current requirements with the responsible agency or a licensed professional.
