What is 2/10 Net 30 Exactly and How to Calculate It
December 13, 2022
Building a solid seller-buyer network requires you to give your buyers trade credits. One of the most popular trade credits is the 2/10 net 30.
The 2/10 net 30 credit gives your buyers a discount if they pay you on time, which promotes bulk purchases and makes them more convenient.
This article will provide you with a breakdown of the 2/10 net 30 trade credit, explain how it works, and show you how to implement it in your invoice, easily created with an online generator.
So, let’s get straight to it!
What are Trade Credits?
Before understanding 2/10 net 30, you should first get familiar with trade credits.
Essentially, trade credits are used by sellers to allow the buyers of their goods to pay after the exchange has been made. The terms of the credits are established by the seller most of the time. They also mostly depend on the cash flow that the seller wants to have.
For example, let’s say that you’re selling a batch of paper to a buyer for $1,000. When the trade credit terms are set, the buyer will receive the paper and pay the invoice amount at the agreed-upon date in the future.
Now, let’s get down to dissecting the meaning of 2/10 net 30.
What Does 2/10 Net 30 Mean?
The 2/10 net 30 refers to a popular method that allows sellers to extend trade credits to buyers and give them a discount if they pay the price of the goods early.
The “2” in the term represents a discount of 2%, whereas the “10” signifies a period of 10 days. This means that if the buyer pays the invoice amount within 10 days of purchase, they will get a 2% discount on the net price.
“Net” in the term refers to the net price of the goods being sold, and “30” represents a period of 30 days. This indicates that if the buyer doesn’t pay the full price of the goods within 10 days, they will not get any discount, and they must pay the net price within 30 days of purchase.
How to Calculate 2/10 Net 30
Let’s take a look at an example of the net 2/10 net 30 trade credit so you can have a crystal clear picture of how it works in practice:
Date of Invoice Payment
Number of Days Before Paying
Discount # for Early Payment
Payment Amount Due
August 1 through August 10
August 11 through August 30
Now, as you can see, starting on the 1st of August through the 10th of August, the 2/10 discount will be applicable to the total amount the buyer owes you. This means that they will receive a 2% discount on your goods if they pay on or before the 10th of August.
But, if they pay after the 10th of August, the buyer will be required to pay the invoice in full, that is, $1,000.
Should You Take Advantage of 2/10 Net 30?
As a rule of thumb, you should take advantage of the 2/10 net 30 discount only if your company has sufficient cash flow.
You can also use this discount if you have access to supply chain financing from the providers of the goods you’re selling. But, as there is no definite answer to whether you should give the 2/10 net 30 discount to your buyers, it usually depends mostly on you.
Pros and Cons of 2/10 Net 30
The best way to see whether you should opt for the 2/10 net 30 discount is to compare its pros and cons.
The biggest advantages of this discount are:
- It is a great way to build a great supplier/vendor network that respects and understands your accounting cycles.
- It promotes and makes bulk purchases more convenient, as they give more time to buyers to arrange the payment, which can also help them avoid late payments.
- It builds strong vendor/buyer relationships if the buyers respect the invoice amounts and pay on time.
But, like everything in life, even the 2/10 net 30 has a downside, too. Although it goes a long way for the buyers, they might default on the payment, which means you can lose money.
Other Payment Terms Similar to 2/10 Net 30
The 2/10 net isn’t the only trade credit you can provide your buyers with. Here are some other popular payment terms, such as:
- 2/10 Net 45. This trade credit gives the buyer a 2% early payment discount if they pay within 10 days. Otherwise, they’ll have to pay the total amount due within 45 days.
- 3/10 Net 30. The buyer receives a 3% early payment discount if they pay within 10 days. But, if they don’t, they will have to pay the net price of the goods within 30 days.
- 3/20 Net 60. This trade credit gives the buyer a 3% early payment discount if they pay within 20 days. In other cases, they will have to pay the total amount of the invoice within 60 days.
- 2/EOM Net 45. The buyer can get a 2% early payment discount if they pay you by the end of the month, or they’ll have to pay the total amount in 45 days.
- Net 20 EOM. Net 20 EOM means that the buyer has to pay the net price of the goods within 20 days after the end of the month.
Where to Apply 2/10 Net 30
If you’re a business owner and want to give the buyers of your goods a 2/10 net 30 credit, your best bet would be to use a credit invoice.
Credit invoices, also known as credit notes or memos, are documents issued by a seller of goods to their buyers. It outlines the details of the trade, includes the contact information of both parties, and specifies the payment terms and discounts, such as the 2/10 net 30 credit.
Most importantly, the IRS requires you to keep a record of your invoices and provide them to your buyers. On top of that, invoices make it easier for you to file taxes every year and fill out your obligatory W-2 form.
How to Make an Invoice the Easy Way
Generally, you have two methods for making an invoice.
The first method requires you to use software such as Microsoft Word or Excel and then make the invoice from scratch. Bear in mind that this way of making invoices is prone to errors, and the whole process takes a lot of time.
The second method is considered far superior by most people, as it’s way simpler and not as time-consuming. Namely, you can use an online invoice generator, which will provide you with a template of this document that you can easily fill out and issue to the buyer of your goods.
Here’s how it works:
- Fill in the required information in the template
- Review your invoice
- Download your document in PDF form
One of the biggest perks of an online invoice generator is that it allows you to reuse the template for different clients. This saves you a lot of time, as you won’t have to create the invoice from scratch, allowing you to focus on your business and other important paperwork.
2/10 Net 30 FAQ
#1. How do you calculate a 2/10 net discount?
To calculate a 2/10 net discount, simply deduct 2% of the net price of your goods. For example, if the net price is $1,000, your buyer will have to pay $980.
#2. What does the term “2/10 net 30” mean?
The term 2/10 net refers to a trade credit that gives the buyer of goods a 2% discount if they pay the seller within 10 days of exchange.
#3. Should my company take advantage of the 2/10 net 30?
Whether or not your company should take advantage of the 2/10 net 30 depends on whether you have sufficient cash flow or access to financing from the providers of your goods.
#4. What is the average annual interest cost of 2/10 net 30?
The average annual interest rate of 2/10 net 30 is 36.6%. Nonetheless, you should double-check the interest rate with your financial advisor.
Overall, using 2/10 net 30 is an easy way to help you establish a great business relationship with your buyers. But, whether you should provide it to your buyers depends completely on you, as it’s a trust-based trade credit.
Nonetheless, if you opt for the 2/10 net 30 trade credit, don’t forget to include it in your invoices, which you can create in a breeze with our online generator!
- Trade credits allow your buyers to pay for your goods after the exchange has been made.
- 2/10 net 30 is a popular trade credit that gives your buyers a 2% discount if they pay within 10 days. Otherwise, they’ll have 30 days to pay the full amount.
- Although 2/10 net 30 is a great way to build a seller-buyer network, consider your cash flow before giving it to your buyers, as they can always default on the payment.
- To apply the 2/10 net 30 trade credit, simply specify the payment terms in your invoice, which you can create hassle-free with an online invoice generator.
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