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2/10 Net 30: What It Means and What It Is Worth
2/10 net 30 means the buyer can take a 2% discount by paying within 10 days of the invoice date. If it does not, the full amount is due within 30 days. Paid on day 10 instead of day 30, that 2% works out to about 36.5% annualized.
How to read the notation
The three numbers are the discount, the discount window and the full term. In 2/10 net 30 the discount is 2%, the window is 10 days and the full term is 30 days. Other common versions are 1/10 net 30 and 2/15 net 45. The discount is a percentage of the invoice, and the window is counted from the invoice date.
A worked example
A $10,000 invoice is issued on the 1st on 2/10 net 30 terms. If the buyer pays on the 11th, it pays $9,800. If it waits until the 31st, it pays $10,000. Paying 20 days early saves the buyer $200.
| Amount | |
|---|---|
| Invoice | $10,000 |
| Discount (2%) | $200 |
| Paid on day 10 | $9,800 |
| Paid on day 30 | $10,000 |
| Days paid early | 20 |
What it works out to annually
To compare a discount with other uses of cash, annualize it. The simple version is the discount divided by the days paid early, multiplied by 365. Here that is 2% ÷ 20 × 365, about 36.5%.
Illustrative arithmetic only, not a promise of savings or return, and not an APR. Discount Flow's calculator subtracts 2 days from the term because the buyer has 48 hours to start the transfer after accepting, so it shows a slightly higher figure for the same offer, about 40.6%.
That number is large because the discount buys 20 days and there are many 20-day periods in a year. It only applies for as long as the buyer keeps finding invoices to pay early. It is a way to compare, not a return the buyer will earn on a fixed sum.
Why a fixed discount is blunt
2/10 net 30 offers the same 2% whether the supplier badly needs the cash or not, on every invoice, under every circumstance. A supplier that is comfortable might be giving away a discount it never needed to give. A supplier that is stretched might have been willing to give more.
Dynamic discounting keeps the idea and removes the fixed terms. The supplier and buyer agree the discount and the payment date for each invoice, and the discount can rise the earlier the buyer pays. You can try different combinations in the dynamic discounting calculator.
Where fixed terms still make sense
If invoices are small and frequent, one standing term is easy to run and easy to explain. If the supplier does not care much when it is paid, there may be no reason to negotiate each invoice. Fixed terms are also useful as a baseline against which to judge an offer.
If you want to agree discounts invoice by invoice and keep a record of each, see how Discount Flow's dynamic discounting software works.
Frequently asked questions
What does 2/10 net 30 mean?
The buyer can take a 2% discount by paying within 10 days of the invoice date. If it does not, the full amount is due within 30 days.
Is 2/10 net 30 worth taking?
It depends on what else the buyer could do with the cash and on what early payment is worth to the supplier. The annualized figure is a way to compare the discount with those alternatives. It is not a recommendation.
How is dynamic discounting different from 2/10 net 30?
2/10 net 30 is one fixed discount for one fixed window. In dynamic discounting the discount and the payment date are agreed for each invoice, so the discount can move with how early the buyer pays.
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