Payment terms
Supplier payment terms, worked out
Net terms
The full amount is due a set number of days after the invoice date.
- Net 7The full invoice amount is due 7 days after the invoice date, with no discount for paying early.
- Net 10The full invoice amount is due 10 days after the invoice date, with no discount for paying early.
- Net 15The full invoice amount is due 15 days after the invoice date, with no discount for paying early.
- Net 30The full invoice amount is due 30 days after the invoice date, with no discount for paying early.
- Net 45The full invoice amount is due 45 days after the invoice date, with no discount for paying early.
- Net 60The full invoice amount is due 60 days after the invoice date, with no discount for paying early.
- Net 90The full invoice amount is due 90 days after the invoice date, with no discount for paying early.
- Net 120The full invoice amount is due 120 days after the invoice date, with no discount for paying early.
Early-payment discounts
A percentage off for paying inside a short window, otherwise the full amount on the net date.
- 1/10 Net 30The buyer may take a 1% discount by paying within 10 days of the invoice date; otherwise the full amount is due in 30 days.
- 2/10 Net 30The buyer may take a 2% discount by paying within 10 days of the invoice date; otherwise the full amount is due in 30 days.
- 3/10 Net 30The buyer may take a 3% discount by paying within 10 days of the invoice date; otherwise the full amount is due in 30 days.
- 1/15 Net 30The buyer may take a 1% discount by paying within 15 days of the invoice date; otherwise the full amount is due in 30 days.
- 2/10 Net 45The buyer may take a 2% discount by paying within 10 days of the invoice date; otherwise the full amount is due in 45 days.
- 2/15 Net 45The buyer may take a 2% discount by paying within 15 days of the invoice date; otherwise the full amount is due in 45 days.
- 1/10 Net 60The buyer may take a 1% discount by paying within 10 days of the invoice date; otherwise the full amount is due in 60 days.
- 2/10 Net 60The buyer may take a 2% discount by paying within 10 days of the invoice date; otherwise the full amount is due in 60 days.
- 2/30 Net 60The buyer may take a 2% discount by paying within 30 days of the invoice date; otherwise the full amount is due in 60 days.
Month-based terms
Counted from the end of the invoice month, or due on a set day of the next month.
- Net 30 EOMThe full amount is due 30 days after the end of the month in which the invoice is dated, so every invoice from the same month shares one due date.
- 2/10 EOMA 2% discount may be taken by paying within 10 days after the end of the invoice month; the net amount is commonly due 30 days after month end.
- 10th proxPayment is due on the 10th day of the month after the invoice month (proximo means the next month).
- 15 MFIPayment is due on the 15th day of the month following the invoice month (MFI stands for month following invoice).
Cash terms
Paid on receipt, on delivery or before the order ships.
- Due on receiptThe invoice is payable as soon as the buyer receives it; in practice many buyers pay these within a few days.
- COD (cash on delivery)Payment is made when the goods are delivered, before or as the buyer takes possession.
- Cash in advance (CIA)The buyer pays before the supplier ships or starts the work, so the supplier carries no credit risk.
What skipping a discount costs
Not taking an early-payment discount is the same as borrowing the invoice amount from the supplier for the extra days. The simple annual rate is d/(1 − d) × 365 / (net days − discount days). If your own cost of funds is lower, the discount is usually worth taking.
| Term | Extra days | Simple annual rate | Compounded |
|---|---|---|---|
| 3/10 Net 30 | 20 | 56.4% | 74.3% |
| 2/10 Net 30 | 20 | 37.2% | 44.6% |
| 2/10 EOM | 20 | 37.2% | 44.6% |
| 2/15 Net 45 | 30 | 24.8% | 27.9% |
| 2/30 Net 60 | 30 | 24.8% | 27.9% |
| 1/15 Net 30 | 15 | 24.6% | 27.7% |
| 2/10 Net 45 | 35 | 21.3% | 23.5% |
| 1/10 Net 30 | 20 | 18.4% | 20.1% |
| 2/10 Net 60 | 50 | 14.9% | 15.9% |
| 1/10 Net 60 | 50 | 7.4% | 7.6% |
Where terms cause overpayments
Terms rarely cause a loss on their own. The money goes when the term in the ERP differs from the supplier's invoice, when a discount is taken after its window and the supplier later bills the difference, when a statement or reminder is paid as well as the original invoice, and when the same supplier sits in the vendor list twice with different terms. Each of these leaves a payment that can be found in the AP history and asked back.