On an invoice, “1/10 net 30” means the buyer can take a 1% discount by paying within 10 days of the invoice date; otherwise, the full balance is due within 30 days. It is a shorthand payment term sellers use to reward faster payment while still giving buyers a firm final deadline.
What Each Part of the Notation Means
- The 1 is the discount percentage — 1% off the invoice total.
- The 10 is the number of calendar days the buyer has to pay and still qualify for that discount.
- Net 30 means the full invoice amount is due no later than 30 calendar days from the invoice date.
So the buyer has a simple choice: pay in the first 10 days and save 1%, or take up to 30 days and pay the whole amount.
The Math on a Sample Invoice
Take a $1,000 invoice with 1/10 net 30 terms. Paying within 10 days knocks off $10, so the buyer sends $990. Paying anywhere from day 11 through day 30 means the full $1,000 is due, with no discount.
Ten dollars on one invoice is easy to shrug off. Across dozens or hundreds of invoices a month, the savings add up, and the annualized cost of skipping them tells a very different story.
Why 1% Is More Expensive Than It Sounds
Passing on the discount lets you hold your money for an extra 20 days, the gap between day 10 and day 30. Financial analysts convert that into an annual rate with a standard formula:
Annualized cost = (discount ÷ (1 − discount)) × (360 ÷ (net days − discount days))
For 1/10 net 30, that is (0.01 ÷ 0.99) × (360 ÷ 20), or roughly 18.2% per year. Paying on day 30 instead of day 10 costs about the same as borrowing at 18% annual interest. If your business can draw on a line of credit at a lower rate, borrowing to take the discount is the cheaper option.
The related term 2/10 net 30 is even more punishing to skip. Doubling the discount to 2% while keeping the same 20-day window pushes the annualized cost to roughly 36.7%.
Related Payment Terms You May See
1/10 net 30 is one variation in a broader family of invoice terms:
- 2/10 net 30: 2% off within 10 days, full amount due in 30. The most common discount term in business-to-business transactions.
- Net 15, net 30, net 60, net 90: Full amount due in that many days, with no early payment discount.
- Net 30 EOM: Payment is due 30 days after the end of the month the invoice was issued in, rather than 30 days from the invoice date.
- Net 30 ROG: The 30-day clock starts when the buyer receives the goods, not when the invoice is dated.
Longer net terms like 60 or 90 days show up in industries with slow production cycles, or where buyers need to resell goods before they have the cash to pay suppliers.
When the Clock Starts
Under standard terms, the countdown runs from the date printed on the invoice. An invoice dated June 1 would have to be paid by June 11 to get the discount and by July 1 to avoid being late. Both the 10-day and 30-day windows are measured in consecutive calendar days, weekends and holidays included.
If the terms use ROG instead, the trigger is delivery rather than the invoice date, so shipping confirmations and delivery receipts matter for proving when the clock actually started. Because disputes over timeliness do come up, clear records of when invoices and shipments arrived are worth keeping.
The Uniform Commercial Code generally treats payment as due when the buyer receives the goods, unless the parties agree to something else — notations like 1/10 net 30 are that kind of agreement.
What Happens After Day 30
Once the 30-day window closes, the invoice is past due, and the seller has several options:
- Charge late fees or interest, often 1% to 1.5% per month (roughly 12% to 18% annually). The maximum a seller can charge depends on state law, and the fee generally has to be spelled out in the original contract or invoice to be enforceable.
- Pursue collection through demand letters, a collection agency, or a lawsuit for the unpaid balance.
- Report or remember the delinquency in ways that hurt the buyer’s trade credit. Repeated late payments can make it harder to negotiate favorable terms with future suppliers.
How the Discount Is Treated at Tax Time
The IRS gives cash discounts, the kind offered under terms like 1/10 net 30, flexible treatment. A business that takes the discount can either deduct the discount amount or include it in income, as long as it applies the same method consistently from year to year.1Internal Revenue Service. Publication 538 – Accounting Periods and Methods Most businesses simply treat the discount as a reduction in the cost of the goods purchased, which lowers cost of goods sold.
Trade discounts, meaning volume or quantity discounts that apply regardless of when you pay, follow a different rule. Those must reduce the cost of your inventory and cannot be reported as separate income.1Internal Revenue Service. Publication 538 – Accounting Periods and Methods If a single purchase carries both a volume discount and an early payment discount, each is accounted for on its own terms.