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Accounting

Define Payment Terms
Define Payment Terms
 * Other Category: Accounting, Banking / Financing

 * July 24, 2013
 * Dan
 * customer, discount, net 30, payment, payment terms, terms, vendor



See Also:
Terms of Sale
Net 30 Credit Terms
Cost Recovery
2/10 net 30
Down Payment


DEFINE PAYMENT TERMS


Define payment terms as the terms required for payment on a product, are a
function of the service offering of a vendor. These terms are an extension of
how a vendor wants to treat a customer. Common policies are 2/10 net 30, pay in
30 days, payment terms l c (line of credit), cash on delivery, telegraphic
transfer, and more. A payment terms discount may even be offered by vendors as a
benefit of a purchase.

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[button
link=”https://strategiccfo.com/ar-checklist?utm_source=wiki&utm_medium=button%20cta”
bg_color=”#eb6500″]Download The A/R Checklist[/button]

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PAYMENT TERMS EXPLANATION


Payment terms, explained as the terms which dictate when a vendor must be paid,
vary in policy. Some businesses accept no payment terms: they receive cash on
delivery (cod) or even before the product is given to the customer. Other
businesses offer payment terms as a perk of becoming a client. These terms may
be pay in 30 days, a 2% discount for paying within 10 days (2/1 net 30), and
other terms which allow the customer to pay later.
Furthermore, vendor financing is another payment term. The occurs when the
customer pays interest but is allowed to repay the cost of the product they have
received as they see fit. A line of credit is a form of vendor financing when it
is received from the provider of goods. Payment terms are often negotiable, so
some businesses may have the policy of payment terms dnd. Dnd, here, means do
not disclose. This generally means that the vendor will want to talk with the
client to allow for assessment and negotiation of individual situations.
Additionally, payment terms and conditions exist. Conditions on payment may be
as briefly listed above; cash on delivery (cod), payment is to be received in a
foreign currency, and more. In this situation it is up to the vendor to decide
the payment terms and conditions which should be offered to the client.
Additionally, certain payment methods may be required. Payment terms t t
indicate that telegraphic transfer is required. Other methods differ greatly
depending on the situations of both parties.




PAYMENT TERMS EXAMPLE


For example, Joel has a company which provides cleaning of outdoor areas. Their
business has many specialties that include pressure washing, chemical cleaning,
and even cleaning residential back yards with dogs and other pets. This industry
also requires many products and tools for operations.
Joel needs a new pressure washer. To get this item, he will purchase it from one
of his favorite vendors. Fortunately, they provide payment terms which Joel
appreciates.
This company offers 2/10 net 30 terms. This means that Joel can pay within 30
days of receive a 2% discount by paying in 10 days. Joel likes this because it
will allow him flexibility in his decision making.
With these terms Joel decided to pay in 10 days. By receiving the discount, he
has more cash to use on his business. With payment terms like this, he will stay
with this vendor for a long time. For more ways to add value to your company,
download your free A/R Checklist to see how simple changes in your A/R process
can free up a significant amount of cash.

[box]Strategic CFO Lab Member Extra
Access your Cash Flow Tune-Up Tool Execution Plan in SCFO Lab. The step-by-step
plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?
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