Discount Credit Terms

If the vendor provides net credit terms of 30 days, the net purchase settlement balance is due 30 days
after the sales invoice date.

To explain the sense of the net, assume the Gem Merchandise Co. is selling $1,000 of the products to
the consumer. Upon delivery of the goods, the buyer discovers that $100 of the goods is not
appropriate. The consumer shall contact Gem and be told to return the unacceptable products. This
means the Gem's net selling will wind up at $900; the customer's net buy will still be $900 ($1,000 minus
$100). It also means the Gem's net receivable from this client is $900.

Unfortunately, credit-selling firms also find that they do not collect refunds from consumers on time. In
fact, one study found that if the credit term is net 30 days, the money, on average, arrived 45 days after
the invoice date. In order to speed up these fees, certain firms provide credit terms that provide
discounts to all consumers who spend within a shorter amount of time. The discount is referred to as a
purchase discount, cash discount or early payment discount, and the shortened span of time is referred
to as the discount period. For eg, the expression 2/10, net 30, requires the consumer to subtract 2% of
the net sum due if the customer pays within 10 days of the invoice date.