A 2/10, net 30 credit policy:
A) is an expensive form of short-term credit if a buyer forgoes the discount.
B) provides cheap financing to the buyer for 30 days.
C) is an inexpensive means of reducing the seller's collection period if every customer takes the discount.
D) tends to have little effect on the seller's collection period.
E) tends to increase the seller's investment in receivables as compared to a straight net 30 policy.

Question

Quizplus · Accepted Answer

The 2/10, net 30 credit policy means that the buyer can get a 2% discount if the invoice is paid within 10 days, or the full amount is due in 30 days. If the buyer chooses to forgo the discount and pays within 30 days, it is an expensive form of short-term credit as they will be paying the full amount.

A 2/10, Net 30 Credit Policy