What is 2/10 net 30?

2/10 net 30 is a trade credit often offered by suppliers to buyers. It represents an agreement that the buyer will receive a 2% discount on the net invoice amount if they pay within 10 days.

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Otherwise, the full invoice amount is due within 30 days. It’s one of the most used formulations of an early payment discount. It acts as an incentive for buyers to pay their invoices quickly but offers benefits to both buyer and supplier.

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Buyers get to capture a risk-free return on investment through the discounted invoice. Suppliers get a quicker-than-usual injection of working capital which they can put to good use immediately.

2/10 net 30 example

A widget supplier offers a 2/10 net 30 discount to their buyer. The buyer agrees to this trade credit and makes an early payment of $10,000.

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The supplier issues an invoice for $20,000 and $10,000 is deducted as the early payment discount. If the buyer was paying within 30 days, they would have had to pay $20,000 as per the full invoice amount.

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With the discount, the buyer is able to save $2,000 which they can use for other purposes. The supplier also benefits from the early payment as they receive $2,000 more than they would have if the buyer was paying after the due date.

What are the benefits of 2/10 net 30

There are many benefits associated with 2/10 net 30. Many of these are common to other forms of early payment discounts. However, because each trade credit has its own particular advantages and disadvantages, they’re worth looking at in more detail.

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Buyers are incentivized to pay early. This benefits suppliers in two ways. First, it means they won’t have to wait as long to receive payment. Second, it helps to reduce the risk of non-payment.
Early payment discount positions the supplier as trustworthy. They’re showing they’re willing to give some of their own money away even though they’re facing financial pressures.
Early payment discount helps to build long-term relationships. If the supplier’s relationship with the buyer is a win-win, the terms of trade are more likely to be repeated and expanded upon.
Early payment discount can help to build a brand. By offering a more generous trade credit, a supplier can add an extra layer of value to their products.

Other trade credit terms

Discount period: This is the period of time, usually between 7 and 30 days, that the trade credit is valid for.
Discount rate: This is the amount of money that the supplier deducts from their invoice as an early payment discount
Expected payment date: This is the date that the supplier expects the full amount of the invoice to be paid
Due date: This is the date by which the full amount of the invoice must be paid
Trade credit: A promise by one business to another to delay payment on goods or services provided as part of a business transaction.
Trade credit terms: The conditions of the trade credit. This includes the expected payment date, discount period, discount rate, and other terms that are set by the supplier

Methods of securing early payment discounts

Cash discount: Some suppliers will offer their customers an immediate cash discount on their invoices if they make an early payment.
Pre-shipment payment: This is when the supplier receives a payment from their customer before the goods have been shipped.
Standby letter of credit: If a buyer has insufficient credit to support a pre-shipment payment, they can arrange for a standby letter of credit. This is a form of security provided by a third party that the invoice will be paid when it becomes due.

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Unfortunately, there’s no quick and easy solution to securing an early payment discount. The best way to do this is to build a relationship of trust with your supplier.

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Be honest, open, and forthcoming with your payments. This will go a long way toward securing a more favorable trade credit.

Last word

A 2/10 net 30 trade credit is an agreement that the buyer will receive a 2% discount on the net invoice amount if they pay within 10 days. Otherwise, the full invoice amount is due within 30 days.

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There are many benefits associated with 2/10 net 30. This trade credit positions the supplier as trustworthy, helps to build long-term relationships, and can help to build a brand.

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Unfortunately, there’s no quick and easy solution to securing an early payment discount. The best way to do this is to build a relationship of trust with your supplier.

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Keep in mind that suppliers can only do so much to incentivize their customers to pay early. It’s up to the buyer to accept the trade terms and act accordingly.

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