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. 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. 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 is just one arrangement of an early payment discount, with other common forms including 2/10 net 45, 3/10 net 30, and 3/20 net 60. Because early payment discounts offer benefits to both parties in the trade agreement, they’re a common feature in supply chain relations.
2/10 net 30 example
The formulation of the trade credit 2/10 net 30 describes the terms of the early payment discount available. The “2” refers to the percentage discount on offer. The “10” outlines how many days the discount is available from the invoice date. “Net 30” refers to the final payment due date.
The following example of how 2/10 net 30 terms would be interpreted by the buyer company in an early payment discount arrangement shows the impact it can have:
Invoice amount: $100,000
Invoice date: 09/01/2022
Invoice due date: 30 days (09/30/2022)
Paying within 10 days (by 09/11/2022) results in a 2% discount: $100,000 x 0.98 = £$98,000
Paying after 10 days but before or on the due date (09/12/2022-09/30/2022) means the invoice will be paid in full at $100,000
The benefits of 2/10 net 30
The above example shows the benefit on offer for buyers through 2/10 net 30 and other early payment arrangements. The hypothetical buyer was able to save $2,000 in cash risk-free. At scale, these discounts add up to represent a significant saving.
The money saved by capturing early payment discounts can be used by the buyer in-line with their working capital optimization strategy. It’s a financial return that involves no risk and is available again and again.
On the other side of that for the benefit of the supplier, $98,000 is received at least 66% quicker than the $100,000 might have been if there was no discount on offer. This means they have access to 98% of the cash they were due, with much more time to put it to use.
Expediting the collection of accounts receivable this way gives suppliers the chance to manage their working capital more effectively. It might be required to fuel ongoing growth, capture short-term opportunities, or build resilience against market conditions.
However, in some cases, the buyer will have the same objective – to increase their working capital. This might mean that taking the early payment discount is disadvantageous for them – they’d rather pay the full amount of $100,000 but keep hold of the money for the additional 20 days until the due date.
Other trade credit terms
As mentioned, 2/10 net 30 is not the only form of early payment discount that suppliers can offer. In fact, the formula of trade credit payment terms can be adapted practically without limit.
Other common permutations of early payment terms include:
- 2/10 net 45 – A 2% discount is on offer for buyers who pay within 10 days of the invoice date, otherwise, the full amount is due within 45 days.
- 3/10 net 30 – A 3% discount is on offer for buyers who pay within 10 days of the invoice date, otherwise, the full amount is due within 30 days.
- 3/20 net 60 – A 3% discount is on offer for buyers who pay within 20 days of the invoice date, otherwise, the full amount is due within 60 days.
- 2/EOM net 45 – A 2% discount is on offer for buyers who pay before the end of the calendar month, otherwise, the full amount is due within 45 days.
Suppliers or vendors will formulate their early payment discount offering according to their objectives. If they are keen to encourage as many early payments as possible to increase the velocity of their inflows, they might offer a higher discount amount.
Methods of securing early payment discounts
Early payment discounts are a common feature in buyer-supplier relationships because of the mutual benefit on offer. They are available to buyers who pay invoices from their own balance sheet with cash, but there are other methods of getting the discount while also preserving capital.
Most notably, supply chain finance solutions offer a way of unlocking the discount with third-party funding. A third party such as Taulia pays the invoice early on behalf of the buyer, capturing the discount, and the buyer then pays the third party in line with the extended payment terms, preserving cash for longer.
Dynamic discounting solutions offer an alternative option – able to capture early payment discounts on a more granular level through self-funded means or third-party funding. This option gives suppliers more control over which invoices they accelerate, giving them even greater control over their working capital management.