What is '1%/10 net 30'

1%/10 net 30 is a way of providing cash discounts on purchases. It means that if the bill is paid within 10 days, there is a 1% discount. Otherwise, the total amount is due within 30 days. For example, if "$1000 1/10 net 30" is written on a bill, the buyer can take a 1% discount ($1000 x .01 = $10) and make a payment of $990 within 10 days or pay the entire $1000 within 30 days.

BREAKING DOWN '1%/10 net 30'

1%/10 net 30 represents the credit terms and payment requirements outlined by a seller. The vendor may offer incentives to pay early to accelerate the inflow of cash. This is particularly important for cash-strapped businesses or companies with no revolving lines of credit. Companies with higher profit margins are more likely to offer cash discounts.

Structure of 1%/10 Net 30

Although the numbers are always interchangeable across vendors, the standard structure for offering a payment discount is the same. The first number will always be the percentage discount. This figure will indicate the total percentage discount on the invoice prior to shipping or taxes that may be discounted upon early payment. The second number is the always the number of days of the discount period. In the example above, the discount period is 10 days. Finally, the third number always reflects the invoice due date. If the invoice is not paid within the discount period, no price reduction occurs, and the invoice must be paid within the stipulated number of days before late fees may be assessed.

Cost of Credit

Discount terms like 1%/10 net 30 are virtual short-term loans. This is because if the discount is not taken, the buyer must pay the higher price as opposed to paying a reduced cost. In effect, the difference between these two prices reflects the discount lost, which can be reported as a percentage. This percentage is called the cost of credit. When the credit terms are 1/10 net 30, the net result is an interest charge of 18.2% upon the failure to take the discount.

Accounting Entry

The accounting entry for a cash discount taken may be performed in two ways. The gross method of purchase discounts assumes the discount will not be taken and will only input the discount upon actual receipt of payment within the discount period. Therefore, the entire amount of receivable will be debited. When payment is received, the receivable will be credited in the amount of the payment and the difference will be a credit to discounts taken. The alternative method is called the net method. For a discount of 1%/10 net 30, it is assumed the 1% discount will be taken. This results in a receivable being debited for 99% of the total cost.

RELATED TERMS
  1. Discount Rate

    Discount rate is the interest rate charged to commercial banks ...
  2. Discount Note

    A discount note is a short-term debt obligation issued at a discount ...
  3. Accounts Receivable (A/R) Discounted

    Accounts receivable discounted refers to outstanding invoices ...
  4. Pure Discount Instrument

    A pure discount instrument is a type of security that pays no ...
  5. Federal Discount Rate

    The interest rate set by the Federal Reserve that is offered ...
  6. Accrued Market Discount

    Accrued market discount is the gain in the value of a discount ...
Related Articles
  1. Retirement

    Top Discounts For Seniors

    Here is a rundown of some of the best senior discounts across the country.
  2. Retirement

    Senior Discounts Alert: National Parks Pass Rises Aug. 28

    First, Social Security rose a measly 0.3%. Now, the national parks lifetime pass is going up 8 times. Yet another reason to save with senior discounts.
  3. Personal Finance

    9 Student Discounts You Shouldn't Miss

    College students can always stand to save some cash. Here are nine discount opportunities students should explore and exploit.
  4. Investing

    5 Misconceptions About Discount Brokers

    While discount brokers are the perfect choice for some investors, their business model could be detrimental to others.
  5. Financial Advisor

    How Brokerage Fees Work

    What you need to know about fees when choosing between a full service and discount broker.
  6. Investing

    Buying Natural Resources At A Discount

    Recent investor enthusiasm has pushed prices for many assets into bubble territory. By using closed ended funds, investors can buy these assets at a discount.
  7. Investing

    Why Discount Brokerages Aren't Always a Bargain

    Discount brokerage firms and robo-advisors claim to be cheaper, but that isn't always the case.
  8. Investing

    Digging Into The Dividend Discount Model

    The DDM is one of the most foundational of financial theories, but it's only as good as its assumptions.
  9. Investing

    Debt Buybacks Continue

    Many companies are buying bonds back at a discount, and adjusting capital structures to more acceptable levels.
RELATED FAQS
  1. What is the difference between the cost of capital and the discount rate?

    Learn about the differences between the cost of capital and the discount rate as they relate to estimating a required return ... Read Answer >>
  2. How do I use Excel to get discount rate over time?

    Learn how to calculate discount rate in Microsoft Excel and how to find the discount factor over a specified number of years. Read Answer >>
  3. How does a high discount rate affect the economy?

    Find out what would happen if the Federal Reserve decided to set a very high discount rate, the rate at which banks can borrow ... Read Answer >>
  4. What's the difference between the prime rate and the discount rate?

    Learn more about the prime rate and the discount rate and how the Federal Reserve uses these rates in the U.S. economy. Explore ... Read Answer >>
  5. How do you use DCF for real estate valuation?

    Learn how discounted cash flow analysis is used for real estate valuation and the various factors that go into calculating ... Read Answer >>
Hot Definitions
  1. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  2. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  3. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  4. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  5. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  6. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
Trading Center