2/10, n/30 is a trade discount term used in business transactions, particularly in the context of merchandising activities. It refers to a discount offered to customers who pay their invoices within a specific time frame, typically 10 days, and the remaining balance is due within 30 days.
5 Must Know Facts For Your Next Test
The 2/10, n/30 term is commonly used in the context of merchandising activities, where businesses sell physical products to customers.
The 2% discount is offered to customers who pay their invoices within 10 days, while the remaining balance is due within 30 days.
The purpose of the 2/10, n/30 term is to incentivize prompt payment and improve the business's cash flow.
The 2/10, n/30 term is different from a cash discount, which is a single discount offered for paying the full invoice amount within a shorter time frame.
The 2/10, n/30 term is not applicable to service-based businesses, as they do not typically offer physical products for sale.
Review Questions
Explain how the 2/10, n/30 term differs from a cash discount in the context of merchandising activities.
The 2/10, n/30 term is a two-part discount structure, where the customer receives a 2% discount if they pay the invoice within 10 days, and the remaining balance is due within 30 days. In contrast, a cash discount is a single discount offered for paying the full invoice amount within a shorter time frame, typically 10 or 15 days. The 2/10, n/30 term is designed to incentivize prompt payment and improve the business's cash flow, while a cash discount is more focused on immediate payment.
Analyze the impact of the 2/10, n/30 term on the cash flow and accounts receivable management of a merchandising business.
The 2/10, n/30 term can have a significant impact on a merchandising business's cash flow and accounts receivable management. By offering a 2% discount for prompt payment within 10 days, the business incentivizes customers to pay their invoices quickly, which improves the business's cash flow and reduces the amount of outstanding accounts receivable. This, in turn, allows the business to more effectively manage its working capital and make timely payments to suppliers. Additionally, the 30-day net term provides flexibility for customers who may not be able to take advantage of the 2% discount, helping to maintain positive customer relationships.
Evaluate the potential advantages and disadvantages of using the 2/10, n/30 term in the context of merchandising activities compared to a service-based business.
The 2/10, n/30 term is primarily advantageous in the context of merchandising activities, where businesses sell physical products to customers. The discount structure incentivizes prompt payment, which improves cash flow and accounts receivable management. However, this term may not be as relevant or beneficial for service-based businesses, as they do not typically offer physical products for sale. Service-based businesses often have different payment structures and may rely more on recurring revenue or project-based billing, where a 2/10, n/30 term may not be as applicable. Additionally, the administrative burden of managing the discount structure may outweigh the benefits for service-based businesses with smaller transaction volumes. Therefore, the 2/10, n/30 term is generally more suitable for merchandising activities where the benefits of improved cash flow and accounts receivable management can be more effectively realized.
Related terms
Trade Discount: A reduction in the retail price of a product or service offered to customers, usually based on factors such as volume, prompt payment, or other special considerations.
Net 30: A payment term that requires the customer to pay the full invoice amount within 30 days of the invoice date.
Cash Discount: A discount offered to customers who pay their invoices within a specified time frame, typically within 10 or 15 days of the invoice date.