What is 1%/10 Net 30

This is a discount billing term on credit purchase. It is a 1% discount payment made available for debtors who are able to pay up their debt within 10 days of its required 30 days. However, if no payment is made within 10 days, the debtor forfeits the 1% discount and paid the higher amount within 30 days. This means, the discount only works for the first 10days out of the 30 days agreement. For the first 10 days, the debtor is given a chance to pay a reduced amount of the actual debt,  if otherwise, he or she would pay all the expected amount.

The total amount of credit is used to calculate the discount. When a debtor lost the discount, what he or she would be expected to pay is the actual "cost of credit." This means that the reduced amount is discount loss.

Advantage of 1% 10 Net 30

The major goal of any business that uses the 1% 10 Net 30 is to enhance the inflow of cash. This is usually prevalent in business with a revolving credit or cash-strapped. Also, companies with high-profit margin can use this medium to attract more customers or clients to their business.

How It Works

1% 10 Net 30 stands for the credit term and the expected payment requirements put in place by the seller. Although the number is often not the same in every business, the structure for discount payment is always the same. The first figure in the term "1%" stands for the total percentage discount that would be made on the invoice prior to taxes or shipping which might be discounted upon early payment.

How To Calculate 1% Discount

If $2000 - 1% 10 Net 30 was written as the percentage discount on a bill. What is expected of the buyer is to take 1% discount ( $2000 × 0.02 = $20). Hence the discount amount to be paid within 10 days is 1980. Once, it exceeds 10 days, the buyer would pay the actual amount of $2000.

Note that once the buyer losses the discount price within 10 days, there won't be any reduction. However, if after 30 days the buyer is unable to pay up, he or she would be required to pay an additional late fee which will be decided by the seller.

In the explanation, the first number of the term 1% 10 net 30, is said to represent the total number of discount percentage, the second number "10" represent the number of days the discount would last. While the third number "30" represents the due date of the invoice.