Cash Discounts From Vendors:


"I have questions regarding cash discounts from vendors. There seems to be confusion on when cash discounts may be taken. I understand that 1% 10, net 30 indicates that you may take a discount of 1 percent if paid within 10 days of the invoice date. What should be done in the case of 1% 10th, net 30 on an invoice dated 11/7? Net 30 comes due prior to the 10th of the following month. Is it still valid to take the discount up to 12/10? 
What about a vendor that has terms of 1% 10th Prox, net 15th prox and the invoice date is towards the end of the month say 11/27, 11/28, 11/29, 11/30, or 11/31? Does this indicate that the date to take a discount is by 12/10 or the following month of 1/10? It would seem to be the terms would be 1% 10 if it has to be cut by 12/10. Would the due date be 12/15 or 1/15?"


Early pay discounts are sometimes offered with prox terms and are stated as "1% 10th prox net 30" which would mean a discount is offered if paid by the 10th of the next month, otherwise the full amount is due in 30 days.

In the example you give, 1/10th net 30, we suspect a misunderstanding. It is not logical for the "10th" in the stated terms to mean prox 10, since prox 10, in the case of an invoice received November 7th, would be a longer term than 30 days. If an early pay discount is offered with prox terms, the early pay term must by definition be shorter than the prox term. But this would be complicated in prox terms, because the actual time to pay varies according to when the invoice is dated/received (but see below regarding cutoff dates).

In the example you give however, the word "prox" is absent. Therefore it's probable that the discount is offered if paid within 10 days, though possibly (but less likely) by the 10th of the current month; otherwise due in 30 days.

We recommend that you consult your contractual agreement and talk with you vendor. If the vendor is offering an early pay discount and stating it as 1/10th net 30, we believe it is intended to mean you may take a 1 percent discount if paid within 10 days, and otherwise the full amount is due in 30 days.

As you correctly understand, early payment discount terms are expressed as percent discount if paid within a specified number of days, otherwise full payment is due in the specified term. The most common example (in the United States) is 2/10 net 30, which means the payer may take a two percent discount if paying the invoice within 10 days, or pay the full invoice amount if paying in 30 days. In both cases (10 and 30), the days are counted from date of invoice or invoice receipt.

Prox terms define the payment due date as being a specified day in the month following the month of invoice date. So the terms prox 10th for an invoice received in October means that payment is due on the 10th of the following month, i.e. November 10th. If the invoice were dated October 11, the payment would be due November 10th. There's often a cutoff date with prox terms, for example the 25th, in which case an invoice dated October 25th or after, under net 10th prox would be due December 10th, not November 10th.

Have more questions? Submit a request