What does the term 2/10 Net 30 mean?

The term 2/10 Net 30 refers to a payment discount offered to buyers, and the correct interpretation is that a 2% discount is available if the invoice is paid within 10 days, with the full payment being due within 30 days. This practice incentivizes early payment, benefiting the seller by improving cash flow while also offering the buyer a financial incentive to settle their account more quickly.

For instance, if a contractor receives a bill of $1,000, they would have the option to pay just $980 if they settle the bill within 10 days. If not, they have a full 30 days to pay the total amount of $1,000. This type of financing term is quite common in business transactions as it encourages prompt payment while still allowing a reasonable period before the total is due.