What Is 2/10 n/30? How This Payment Term Works

“2/10 n/30” is a common form of trade credit payment terms used in business transactions. This shorthand specifies the conditions under which a buyer must pay an invoice and outlines any potential discounts available for early payment.

Understanding the Discount Term

The “2/10” portion of the payment term indicates a specific discount opportunity for the buyer. The number “2” represents a 2% discount on the total invoice amount. The number “10” signifies that this discount is available if the buyer remits payment within 10 days from the invoice date. For instance, if an invoice is issued on August 1st, the buyer can deduct 2% from the total if they pay by August 11th.

Understanding the Net Term

The “n/30” part of the payment term defines the standard due date for the full invoice amount. The “n” stands for “net,” meaning the total, undiscounted amount of the invoice. The “30” indicates that the full payment is due within 30 days of the invoice date. This means if a buyer chooses not to take advantage of the 2% discount within the initial 10-day period, the entire invoice balance becomes due by the 30th day. For example, an invoice dated August 1st would have its full payment due by August 31st, assuming no discount was taken.

Calculating and Applying the Terms

To illustrate, consider a hypothetical invoice for $1,000 with “2/10 n/30” payment terms. The invoice date is September 1st. If the buyer pays within the 10-day discount period, specifically by September 11th, they can calculate the discounted amount. A 2% discount on $1,000 is $20 ($1,000 0.02). Therefore, the buyer would only need to pay $980 ($1,000 – $20).

Conversely, if the buyer does not pay by September 11th, the discount opportunity expires. The full $1,000 amount then becomes due. The buyer would be required to pay the entire $1,000 by the net due date of September 30th.

Benefits for Buyers and Sellers

Taking advantage of the “2/10 n/30” discount can provide financial benefits for buyers. Paying early for a 2% discount translates to a high annualized return. For example, foregoing the 2% discount over a 20-day period (from day 10 to day 30) is equivalent to an annualized interest rate of approximately 36.7% (2% / (20/365 days)). This makes taking the discount a financially attractive option, often outweighing the cost of short-term borrowing for many businesses.

For sellers, offering these terms helps improve their cash flow. Receiving payments sooner reduces the amount of capital tied up in accounts receivable, which can then be used for operations, inventory, or other investments. Faster payments also decrease the risk of bad debts, as older invoices are generally more difficult to collect. This strategy can reduce the administrative burden and costs associated with collections efforts.