What is 2/10 N 30?
Definition: 2/10 Net 30, sometimes called 2-10 N30, is a trade credit whereby a business promises a 2% discount, on a client making payment within the first ten days of purchase. Failure to make payment within 10 days, then a customer will have to contend with full payment within 30 days.
Businesses offer a wide array of discounts as a way of gaining an edge in a highly competitive industry. Also, the company does offer time-based discounts as a way of trying to boost its cash levels through sales. 2/10 Net 30 is one such trade credit, commonly provided by businesses.
The lack of cash is one of the reasons why most businesses fail. To counter such risks, a business owner may decide to offer the 2/10 Net 30 to try and get more cash within ten days. Businesses offering such a discount try to show that it is essential to have cash as quickly as possible rather than having the full amount of the payable. The trade discount thus goes a long way in ensuring businesses has a consistent credit turnover, which is often challenging to maintain.
2/10 Net 30 Example
If a business owner is not making sufficient sales because of fierce competition, then he or she may opt to offer 2/10 Net 30 discounts as a way of gaining a competitive edge. Likewise, the business owner may decide to allow customers to settle payments within 30 days of purchasing goods or services. However, upon making payments within ten days, the customers would be able to enjoy a 10% discount.
For instance, if a customer makes purchases worth $500, he will only have to pay $490 upon making full payment within ten days. However, making payments after ten days, the customer will have to make total payments, which in this case, is $500.
While the numbers are always interchangeable, the standard structure of the 2/10 Net 30 trade credit is still the same. In the first part, in this case, ‘2’ designates the discount while the second part ’10’ designates the duration in which the discount is available.
For instance, the 2/10 Net 30 can be tweaked to 1/10 Net 30, indicating a 1% discount within the first ten days of purchase or full payment within 30 days. The 2/10 Net 30 trade credit can also appear as 2/10 Net 40 or 2/10 net 60.
2/10 Net 30 Trade Credit Benefit
The 2/10 Net 30 trade credit helps shorten account receivable cycles for companies and businesses that provide credit terms. The trade-credit is especially beneficial when businesses have account receivables turnover cycles that exist longer than preferred.
The 2/10 Net 30 trade credit is also of great benefit to cash strapped businesses or companies that don’t have revolving lines of credit. By offering, such discounts such businesses can attract huge sales and get payments within ten days of making sales.
The trade discount also benefits companies with high-profit margins. By offering such discounts, businesses can make more sales while still being able to accrue a substantial amount of profit, given the high-profit margin.
2/10 Net 30 Trade Credit Benefit
Customers are likely to buy more of what is on offer and pay on time as a way of taking advantage of the 2% discount.
The 2/10 N30 trade credit also tends to fuel customer loyalty. The credit terms often time, tell buyers that the seller considers them trustworthy and have confidence that they will make payment in time, thus fueling commitment.
The trade-credit can also help a business accrue a competitive edge in an industry with fierce competition.
Terms 2/10 N 30 Disadvantages
The biggest downside of the 2/10 Net 30 trade credit is that sellers don’t receive cash immediately for sales. When sellers have bills to pay, delayed payments can pose significant challenges.
Delayed payments with 2/10 Net 30 can also lead to bad debts that can hurt a business in the end.