What does 2/10, n/60 mean in the sales terms?

What does 2/10, n/60 mean in the sales terms?

• A. 2% discount if paid within 10 days
• B. 2% discount if paid within 60 days
• C. 60 days to pay with 2% discount
• D. 10 days to pay full amount

Answer: (A)

These terms describe how a seller encourages quick payment. The "2" is the discount percentage, and the "10" is the number of days in which you must pay to earn that discount. The "n/60" (net 60) means the full invoice is due in 60 days if you don’t take the discount. So, you pay 98% of the invoice if you settle within 10 days (a 2% discount), or you pay the full amount by day 60 if you don’t take the discount. For example, on a $1,000 invoice, paying within 10 days would cost $980; waiting to pay by day 60 would cost $1,000. This arrangement helps the seller improve cash flow, while the buyer weighs the benefit of the discount against holding onto cash longer. The implicit cost of not taking the discount can be thought of as paying 2% for up to 50 extra days of credit, which is a high annualized rate.

These terms describe how a seller encourages quick payment. The "2" is the discount percentage, and the "10" is the number of days in which you must pay to earn that discount. The "n/60" (net 60) means the full invoice is due in 60 days if you don’t take the discount.

So, you pay 98% of the invoice if you settle within 10 days (a 2% discount), or you pay the full amount by day 60 if you don’t take the discount. For example, on a $1,000 invoice, paying within 10 days would cost $980; waiting to pay by day 60 would cost $1,000.

This arrangement helps the seller improve cash flow, while the buyer weighs the benefit of the discount against holding onto cash longer. The implicit cost of not taking the discount can be thought of as paying 2% for up to 50 extra days of credit, which is a high annualized rate.