All 22 Vendor Management questions
More in Vendor Management
What is the vendor master file? What is vendor onboarding and what checks are involved? What is a W-9 (or W-8) form and why does AP collect it? What is a preferred supplier list and why maintain one? Why is standardized vendor naming and data important? What is the purpose of a vendor onboarding checklist? Why are controls over vendor bank-detail changes so important? How do you detect and prevent duplicate vendors in the master file? What is a supplier statement reconciliation and why perform it? How does vendor segmentation improve AP management?
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Accounts Payable & Receivable › Vendor Management

What are payment terms and how are they expressed?

Beginner

Answer

Payment terms define when payment is due and any early-payment discount, e.g., 'Net 30' (due in 30 days) or '2/10 Net 30' (2% discount if paid within 10 days, otherwise full amount in 30). Terms affect cash flow, working capital, and supplier relationships, and are stored on the vendor master and PO.
2/10 Net 30 on a $10,000 invoice:
  Pay within 10 days -> 10,000 x 98% = 9,800 (save 200)
  Otherwise pay 10,000 by day 30.
Real-world example Finance pays a 2/10 Net 30 invoice early to capture the $200 discount, an attractive annualized return.

Common follow-ups: How do you annualize an early-payment discount? | What is Net EOM?

Payment Runs Credit Control Vendor Management
All 22 Vendor Management questions