Purchasing & suppliers
Payment Terms
By the Supply Chain Manager team · Updated October 16, 2026
Payment terms set when a supplier invoice must be paid and any early-payment discount, for example net 30 or 2/10 net 30.
Net 30 means the full amount is due 30 days after the invoice date. 2/10 net 30 means you may take a 2% discount if you pay within 10 days; otherwise the full amount is due in 30.
Skipping an early-payment discount is effectively borrowing from the supplier at a high rate. For 2/10 net 30, paying on day 30 instead of day 10 costs about 2% for 20 days, which works out to roughly 37% a year.
How to calculate payment terms
Annualized cost of skipping the discount ≈ Discount ÷ (1 − Discount) × 365 ÷ (Net days − Discount days)
Payment terms example
Illustrative numbers: on a $20,000 invoice at 2/10 net 30, paying by day 10 saves $400. Waiting until day 30 keeps $19,600 in your account for 20 more days at that $400 cost.
Why payment terms matters for distributors
Payment terms shape the cash-to-cash cycle. Longer supplier terms fund inventory with the supplier's money; early-payment discounts can be a better return than most uses of spare cash.
Common payment terms mistakes
- Ignoring early-payment discounts without working out their annual rate.
- Paying early by default and draining cash with no discount.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.