# What Does 1%/10 Net 30 Mean in a Bill’s Payment Terms?

![1%/10 Net 30](https://www.investopedia.com/thmb/wd6DMON9Px2gDA4csLk-EdnvGIk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/110-Net-30_Final-rresized-4f351474fee4448ba7003de8bc14e0bf.jpg)

*— Paige McLaughlin / Investopedia*

> **Definition**
>
> The 1%/10 net 30 payment term offers a 1% discount to payees if they're willing to pay an invoice within the first 10 days of a 30-day payment period.

## What Is 1%/10 Net 30?

1%/10 net 30 is a payment term used to incentivize a payor to pay an invoice early to capture a [cash discount](https://www.investopedia.com/terms/c/cash-discount.asp) on purchases. This means that if the bill is paid within 10 days, a 1% discount will be applied to the purchase price. Otherwise, the full total amount is due within 30 days.

### Key Takeaways

*   A 1%/10 net 30 deal contains two payment terms: a potential price discount for early payment and more general payment due terms.
*   1%/10 means a payee can take a 1% discount on services or products as long as they are paid within 10 days.
*   At the same time, the payee must make payment on the invoice within 30 days, regardless whether they opt to make early payment or not.
*   The cost of credit is used as a percentage and occurs when the buyer does not take the reduced cost, thus paying the higher cost, reflecting the discount loss.
*   A vendor may offer incentives to pay early to accelerate the inflow of cash, which is especially important for businesses with no revolving lines of credit.

## Understanding 1%/10 Net 30

The 1%/10 net 30 calculation represents the [credit](https://www.investopedia.com/terms/c/credit.asp) terms and payment requirements outlined by a seller. The [vendor](https://www.investopedia.com/terms/v/vendor.asp) may offer incentives to pay early to accelerate the inflow of cash. This is particularly important for cash-strapped businesses or companies with no revolving [lines of credit](https://www.investopedia.com/terms/l/lineofcredit.asp). Companies with higher [profit margins](https://www.investopedia.com/terms/p/profitmargin.asp) are more likely to offer cash discounts.

Although the numbers are always interchangeable across vendors, the standard structure for offering a payment discount is the same. The first number will always be the percentage discount. This figure will indicate the total percentage discount on the invoice prior to shipping or taxes that may be discounted upon early payment.

## Special Considerations

Discount terms like 1%/10 net 30 are virtual [short-term loans](https://www.investopedia.com/terms/s/shorttermdebt.asp). This is because if the discount is not taken, the buyer must pay the higher price as opposed to paying a reduced cost. In effect, the difference between these two prices reflects the discount lost, which can be reported as a percentage. This percentage is called the cost of credit.

When the credit terms are 1%/10 net 30, the net result becomes, in essence, an [interest](https://www.investopedia.com/terms/i/interest.asp) charge of 18.2% upon the failure to take the discount.

> **Fast Fact**
>
> Companies with higher profit margins are more likely to offer cash discounts.

The [accounting](https://www.investopedia.com/terms/a/accounting.asp) entry for a cash discount taken may be performed in two ways.

The gross method of purchase discounts assumes the discount will not be taken and will only input the discount upon actual receipt of payment within the discount period. Therefore, the entire amount of receivable will be [debited](https://www.investopedia.com/terms/d/debit.asp). When payment is received, the receivable will be credited in the amount of the payment and the difference will be a credit to discounts taken.

The alternative method is called the net method. For a discount of 1%/10 net 30, it is assumed that the 1% discount will be taken. This results in a receivable being debited for 99% of the total cost.

## Example of 1%/10 Net 30

For example, if “$1,000 - 1%/10 net 30” is written on a bill, the buyer can take a 1% discount ($1,000 × 0.01 = $10) and make a payment of $990 within 10 days, or pay the entire $1,000 within 30 days.

> **Important**
>
> If the invoice is not paid within the discount period, no price reduction occurs, and the invoice must be paid within the stipulated number of days before late fees may be assessed.

The second number is always the number of days of the [discount period](https://www.investopedia.com/terms/d/discounting.asp). In the example above, the discount period is 10 days. Finally, the third number always reflects the invoice due date.

## What Does 1%/10 Net 30 Represent?

The 1%/10 net 30 calculation represents the credit terms and payment requirements outlined by a seller. The vendor may offer incentives to pay early to [accelerate the inflow of cash](https://www.investopedia.com/articles/personal-finance/061215/10-ways-improve-cash-flow.asp).

## Is 1%/10 Net 30 a Loan?

Yes. Discount terms like 1%/10 net 30 are virtual short-term loans. If the discount is not taken, the buyer must then pay the higher price as opposed to paying a reduced cost.

## What Do the Numbers in a 1%/10 Net 30-type Calculation Stand for?

The first number is always the percentage of the discount. The second number is always the number of days of the discount period. The third number always reflects the invoice due date.

## The Bottom Line

The 1%/10 net 30 calculation provides cash discounts on purchases. If the bill is paid within 10 days, there is a 1% discount. Otherwise, the total amount is due within 30 days.