Which is generally a better credit term?
(a) 2 / 20 (b) 1 / 20 (c) 2 / 10 (d) 3 / 10 (e) 1 / 10
I am thinking its either b or e cause its 1 outta something and the others are 2 or 3 outta something so im not for sure how to figure out which is generally a better credit term so can someone please help me on that to figure it out i would greatly appreciate it.
2/20 = 2/20
1/20 = 1/20
2/10 = 4/20
3/10 = 6/20
1/10 = 2/20
So, which is best?
1/20 i believe
To determine which credit term is better, you need to understand the meaning of the terms and their implications for the cost of credit.
In the credit terms provided, the number before the slash represents the discount percentage, while the number after the slash represents the number of days granted for payment. The discount percentage is the amount by which the invoice can be reduced if paid within the specified number of days.
For example:
- 2/20 means a 2% discount if paid within 20 days.
- 1/20 means a 1% discount if paid within 20 days.
- 2/10 means a 2% discount if paid within 10 days.
- 3/10 means a 3% discount if paid within 10 days.
- 1/10 means a 1% discount if paid within 10 days.
To determine which credit term is generally better, you should consider two factors:
1. The discount percentage: A higher discount percentage means a larger reduction in the invoice amount. So, a higher discount percentage is generally more advantageous.
2. The payment period: A shorter payment period means you have to pay the invoice earlier, allowing for potential savings from the discount. So, a shorter payment period is generally more advantageous.
Comparing the options:
(a) 2/20: 2% discount within 20 days
(b) 1/20: 1% discount within 20 days
(c) 2/10: 2% discount within 10 days
(d) 3/10: 3% discount within 10 days
(e) 1/10: 1% discount within 10 days
Based on the factors mentioned above, the credit terms (c) 2/10 and (d) 3/10 are generally better than the others because they offer a higher discount percentage and a shorter payment period. So, options (c) and (d) are the better credit terms.
Remember that the best credit term for your specific situation may vary depending on your cash flow and ability to pay within the specified time frames.