Fact or Myth? Can You Afford NOT to Use the Trade Credit Discount?

August 09, 2019
Fact or Myth? Can You Afford NOT to Use the Trade Credit Discount?
calculating Trade Credit Discount

Trade credit is a great B2B business deal to finance growth. A buyer receiving goods and services on credit has its perks, but there are other incentives customers can take advantage of including the 2/10 Net 30 discount. Check the invoices you receive from vendors to see if their terms include this. We’ll start by defining was a trade credit is and if it’s something you actually need to take advantage of for your business.


What Is a Trade Credit


Simply put, the 2/10 Net 30 is a trade credit that’s extended to a customer for upfront goods and services. If the amount the customer owes is paid within 10 days, the customer receives a 2 percent discount. If the balance is not paid in full within 10 days, the entire balance is due in 30 days. This offer is used to initiate early payment. Often times, when a vendor offers credit, they will also offer a discount or incentive to encourage the customer to pay their balance off early.


Example of a 2/10 Net 30 Credit


If a trader purchases $10,000 from company A on 2/10 Net 30 terms and pays within 10 days, the customer only needs to pay $10,000 x 0.98 totaling, $9,800. If the customer pays after 10 days, the full $10,000 balance is due.


Can You Afford to Neglect the Trade Credit Discount?


The answer is, no! Your business can’t afford not to take advantage of the discount and here’s why.


You would have to make adjustments on interest earned if your business doesn’t take advantage of the 2/10 Net 30 credit. More importantly, the trade credit principle has a positive impact on your cash flow. The 2/10 Net 30 trade credit keeps the business network competitive. By taking advantage of the discount, your business can save significantly 16 percent on goods and services.


Learn More About the Trade Credit Discount


At Financial Foster CPA, we’re your certified public accountant. You’re invited to contact us to discuss your business finances today!