Unformatted text preview: able to the
credit customer who pays its
account within a specified time. Credit terms are the terms of sale for customers who have been extended credit
by the firm. Terms of net 30 mean the customer has 30 days from the beginning
of the credit period (typically end of month or date of invoice) to pay the full
invoice amount. Some firms offer cash discounts, percentage deductions from the
purchase price for paying within a specified time. For example, terms of 2/10 net
30 mean the customer can take a 2 percent discount from the invoice amount if
the payment is made within 10 days of the beginning of the credit period or can
pay the full amount of the invoice within 30 days.
A firm’s regular credit terms are strongly influenced by the firm’s business.
For example, a firm selling perishable items will have very short credit terms,
because its items have little long-term collateral value; a firm in a seasonal business may tailor its terms to fit the industry cycles. A firm wants its regular credit
terms to conform to its industry’s standards. If its terms are more restrictive than
its competitors’, it...
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