ACC 250 Lecture Notes - Lecture 8: Credit Manager
10 Jun 2018
School
Department
Course
Professor
Sales Discounts
A cash discount is a reduction of the amount of a bill if payment is made on or before the
discount date stated on the bill. The purpose of a cash discount is to encourage the customer
to pay promptly.
Terms of Sale
Every business establishes certain terms of sale with its customers. The phrase terms of sale
refers to the arrangements made with customers as to when the goods or services are to be
paid for and whether a cash discount is offered. There are various terms of sale. The most
common ones are outlined below.
Standard Terms of Sale
1. C.O.D. cash on delivery. The goods must be paid for at the time they are delivered.
2. On account or charge. The full amount of the invoice is due at the time the invoice is
received but a brief time, usually 25 days, is given to make the payment.
3. 30 days or net 30. The full amount of the invoice is due 30 days after the date of the
invoice. 60 days or net 60. The full amount of the invoice is due 60 days after the date of the
invoice.
4. 2/10, n/30. This is read as two per cent, ten, net thirty or just two, ten, net thirty. If the bill
is paid within 10 days of the invoice date, a cash discount of 2 per cent may be taken.
Otherwise, the full amount of the invoice is due 30 days after the invoice date. 1/15, n/60. If
the bill is paid within 15 days of the invoice date, a cash discount of 1 per cent may be taken.
Otherwise the full amount of the invoice is due 60 days after the invoice date.
The terms of sale often depend on the customer’s reputation for reliability in paying. A
reliable customer of long standing will probably be granted very favourable terms. A new
customer, about whom little is known, may be expected to pay cash on delivery, at least for a
short time.
Every time a sale is made and an invoice is sent out, the customer is reminded of the terms
for payment. Also, the terms are usually recorded on the customer’s account card, so that the
credit manager, the sale manager, and other interested people may refer to them easily.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
A cash discount is a reduction of the amount of a bill if payment is made on or before the discount date stated on the bill. The purpose of a cash discount is to encourage the customer to pay promptly. Every business establishes certain terms of sale with its customers. The phrase terms of sale refers to the arrangements made with customers as to when the goods or services are to be paid for and whether a cash discount is offered. Standard terms of sale: c. o. d. cash on delivery. The goods must be paid for at the time they are delivered: on account or charge. The full amount of the invoice is due at the time the invoice is received but a brief time, usually 25 days, is given to make the payment: 30 days or net 30. The full amount of the invoice is due 30 days after the date of the invoice.
