You get an invoice marked “2/10 net 30” and wonder whether that 2% is worth chasing. It is a coded payment term, and the math behind it is simpler than it looks.
What does 2/10 net 30 mean?
The code has three parts. The first number is the discount, the second is the number of days to earn it, and “net 30” is the final due date. Wikipedia gives the standard reading: the buyer must pay within 30 days of the invoice date, but receives a 2% discount if they pay within 10 days of the invoice date.
The “30” is a number of days, not a percentage. It is the most common misreading of the term.
The formula for the price you pay
Price paid = invoice amount × (1 − discount). Pay inside the discount window and you use the reduced figure. Pay after it and you owe the full invoice, as long as you stay inside the net period.
A worked example
Say a supplier invoices your shop for ₹50,000 on terms of 2/10 net 30.
- Pay within 10 days: 50,000 × (1 − 0.02) = ₹49,000, a saving of ₹1,000.
- Pay between day 11 and day 30: you owe the full ₹50,000.
It looks like a small saving. Now ask what you are really buying: you pay 20 days earlier (day 10 instead of day 30) and keep ₹1,000. That is a gain of 1,000 ÷ 49,000 = 2.04% for 20 days of your money.
How to turn it into a yearly rate
A year has about 18.25 blocks of 20 days (365 ÷ 20). Multiply the gain by that: 2.04% × 18.25 = about 37% a year. This is our own arithmetic, not a figure from Wikipedia, and it ignores compounding. With compounding it is closer to 45%.
Compare that with the cost of borrowing. If you had to borrow ₹49,000 at an illustrative 12% a year to pay early, 20 days of interest would cost about ₹322. You would still keep roughly ₹678 of the ₹1,000. Taking the discount is usually worth it if you can pay without straining your cash.
Other terms you may see
- 3/7 EOM: 3% off if you pay within 7 days after the end of the month shown on the invoice.
- 2/15 net 40 ROG: payment due 40 days after receipt of goods, with 2% off if paid within 15 days. ROG means receipt of goods.
Always check which date the clock starts from: the invoice date, the end of the month, or the day the goods arrive.
The same 2% can be a very different deal
The result depends on how many days you gain. Using the same method on ₹50,000:
- 1/10 net 30: about 18% a year (simple).
- 2/10 net 30: about 37% a year (simple).
- 2/10 net 60: about 15% a year (simple), because the same 2% is spread over 50 days instead of 20.
Wikipedia also gives a trade credit example with an ice cream stand: net 60, 10% off if paid within 30 days, 20% off if paid within 10 days. A buyer with slow sales may skip the discount and use the full 60 days instead of paying early.
Common mistakes
- Reading “30” as a percentage instead of a number of days.
- Judging 2% as “small” without counting the days you gain.
- Counting from the wrong date (invoice, end of month or receipt of goods).
- Paying early without checking whether your cash flow can absorb it.
A simple rule: divide the discount by the price you pay, then scale it to a year. If the result beats your cost of borrowing, take the discount. For stacked percentages on a shelf price, see our guide to 20% off plus an extra 10%.
