What does 2/10 net 30 mean?

How to read the shorthand

The first number is the discount in percent, the second is the number of days the discount is available, and net 30 is the number of days until the full invoice amount is due. The days usually count from the invoice date, though some contracts count from delivery or from the end of the month, so the terms should say which. The discount applies to the invoice amount the parties agree it applies to; where tax is involved, the discounted price and the tax on it should be worked out the way your accountant advises and shown clearly. Written in words on an invoice, 2/10 net 30 might read: 2 percent discount if paid within 10 days of the invoice date, otherwise the full amount is due within 30 days.

Why the discount is expensive for the seller

A 2 percent discount sounds small, but it buys only 20 days of earlier payment. Dividing 2 by the 98 actually paid gives about 2.04 percent for 20 days, and there are about 18 such periods in a year, which works out at roughly 37 percent a year. That is why buyers with cash on hand usually take the discount, and why sellers should offer it only when faster cash is worth a lot to them, for example to fund materials for the next job. A smaller 1 percent discount on the same window still implies about 18 percent a year.

When it makes sense to offer

Early payment discounts suit businesses with thin cash buffers and buyers who pay in batches, because they move your invoices to the front of the queue. They make less sense for a sole trader billing a few clients, where a clear due date, an easy way to pay and reminders often do the same job at no cost. In the UK, statutory interest at 8 percent above the Bank of England base rate gives an alternative lever for late business payments, and in Australia large businesses report their payment times to the Payment Times Reporting Regulator, so slow payment is visible.

Common mistakes

Buyers sometimes take the discount after day 10, paying 98 percent on day 25. Decide in advance whether you will accept that and say so. Sellers sometimes write 2/10 net 30 without saying when day one starts, which invites argument. Another mistake is offering the discount on every invoice by habit, then finding margins are 2 percent lower across the year. And a discount term should appear on the quote as well as the invoice, so it is part of the deal the client accepted.

Where it shows up in the product

Proposals and invoices in the proposals module carry their terms as written clauses and a due date, so an early payment discount is something you state in the terms rather than a rule the software applies. The pricing table can show a Discount column and a Discount line when a discount is set, which suits a discount agreed up front. Reminder presets then email the client around the due date, and the invoice turns overdue the day after it.

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