One of the biggest assumptions in the formula is that you take the discount at the last possible day and you normally would pay on the last day of the nondiscount period.To give you an idea of how the numbers work for various combinations, here's a table of some common combinations: Remember, the number of days in the second column is the number of days between the last day of the discount and the final date of the invoice.2/10, n/30 indicates a 2% discount if the buyer pays the invoice within ten days, otherwise the net payment is fully due within 30 days.
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The gross method is most commonly used method in business practice today.
In the net method however, sales revenue is treated as the net amount after the given discount, and any discounts that the buyer doesn’t take are recorded as interest revenue.
Cash discounts are incentives offered to buyers that reduce the amount owed to the seller by either a fixed amount or a percentage of the total bill.
If an invoice fx is due in 30 days, a seller could offer the buyer a cash discount of say 2% if the invoice is paid within the first 10 days of receipt.
As the customer, the question is, should you take the discount?
As a vendor, the question is, should you offer a discount?
You can see that when the time between the discount date and the final date is short, 15 or 20 days, the savings are significant.