When goods or services are purchased on account from a supplier, the invoice will stipulate the supplier invoice payment terms. These payment terms indicate when an invoice is to be paid.
For example, an invoice might stipulate payment terms net 30 or n/30 terms, which means that the full amount of the invoice is due for payment 30 days from the date of the invoice. Alternatively it might specify net 60 days or n/60, which indicates the invoice is due to be paid 60 days from the invoice date.
Early Settlement Discounts
Supplier invoice payment terms often include an incentive to pay early by offering an early settlement discount if the invoice is paid before its due date.
For example, the payment terms net 30 might be combined with a 1% early settlement discount for payment within 10 days, and the invoice would then refer to payment terms 1 10 net 30 or 1/10, n/30. This means that is the invoice if paid within 10 days a discount of 1% can be deducted from the invoice value before paying, if the invoice is paid after 10 days the full amount must be paid, and in any event, the invoice must be paid within 30 days of the invoice date.
Payment Terms 1 10 net 30 Example
Suppose an invoice is issued for 2,000 and the supplier invoice payment terms are 1% 10 days, net 30 terms. If paid within 10 days a discount of 2,000 x 1% = 20 can be taken and the amount paid would be 2,000 – 20 = 1,980. If paid after 10 days then the full amount of 2,000 would have to be paid. Under the net 30 terms and conditions, the invoice must be paid within 30 days.
Multiple Step discounts
Variations in supplier invoice payment terms exist to allow for multiple step discounts. For example, net 60 terms might be expressed as 2/20, 1/30, net 60 terms, meaning that a 2% discount is available for payment within 20 days, a 1% discount is available for payment within 30 days, and the full amount must be paid within 60 days.
Other Examples of Supplier Invoice Payment Terms
Other common examples of supplier invoice payment terms are as follows:
- 90 day payment terms terms: Full amount due within 90 days, sometimes shown as n/90.
- Net on receipt terms: Full amount due on receipt of the goods.
- Net EOM terms: Full amount due at the end of the month (EOM) in which the invoice was issued.
- 3/15. n/60 terms: 3% discount for settlement in 15 days, net 60 terms meaning the full amount is due within 60 days.
- 1/10, n/20 terms: 1% discount for settlement in 10 days, net 20 terms meaning the full amount is due within 20 days.
- 5/10, 2/30, n/60 terms: 5% for settlement within 10 days, 2% for settlement in 11-30 days, full amount due within 60 days.
- Net 30 EOM terms: Payment is due in full 30 days after the end of the month (EOM) in which the invoice was issued.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.