Reading the terms
Terms are a contract term, not a convention. Whatever the master agreement or the purchase order says governs; the invoice usually repeats it. Record the terms on the vendor in your bill-pay tool so every bill gets the right due date automatically.
- Due on receipt: pay now. Common for small vendors and one-off services.
- Net 30, Net 45, Net 60: the full amount is due that many days after the invoice date.
- Net 30 EOM: due 30 days after the end of the month the invoice is dated in.
- 2/10 net 30: take 2% off if you pay within 10 days; otherwise the full amount is due in 30.
- 1/10 net 30, 2/10 net 60 and other variants: the same idea with a different discount or a different net period.
The math on 2/10 net 30
Skipping the discount means paying 2% more to keep your money for 20 extra days, from day 10 to day 30. You are, in effect, borrowing $98 for 20 days at a cost of $2. That is 2.04% for 20 days. There are about 18.25 twenty-day periods in a year, so the simple annualized cost is about 37.2%. Compounded, it is about 44.6%.
The same formula works for any offer: discount ÷ (100 − discount), times 365 ÷ (net days − discount days). 1/10 net 30 is about 18.4% a year; 2/10 net 60 is about 14.9%. Compare the result with what your cash actually earns in a treasury account and what it would cost to borrow. For most startups holding cash from a round, 2/10 net 30 is an easy yes and a longer net period is closer to a judgment call.
A worked example: taking the discount
A contract manufacturer bills you $12,000 on October 2, terms 2/10 net 30. Record the bill at the full amount when it is approved. Debit side: the expense or inventory account it belongs to, $12,000. Credit side: accounts payable $12,000.
You pay on October 8, inside the 10 days, and send $11,760. Debit side: accounts payable $12,000. Credit side: cash $11,760 and purchase discounts $240. The $240 is either shown as a reduction of the related cost or in its own contra account; choose one and use it consistently. If you miss the window, the payment on October 30 is simply debit accounts payable $12,000, credit cash $12,000, and the $240 you didn’t save is visible to nobody, which is why discounts get missed.
Scheduling payment runs
A payment run is a fixed day when every approved bill due before the next run is paid together. Weekly suits companies with many vendors; twice a month suits most startups. Batching makes the run easy to review in one sitting (vendor, amount, method, any changed bank details) and lets you see the cash balance after the run before you release it.
Schedule each payment to arrive on its due date, allowing for settlement: a business day or two for standard ACH, a week or more for a mailed check. Bills with a discount deadline before the next run get pulled forward into the current one. Anything you are deliberately holding, such as a disputed invoice, is held in the tool with a reason, not left unapproved where it looks like an oversight.
Terms and your cash plan
Payables are part of the cash forecast. A 13-week cash forecast that lists approved bills by due date, plus the recurring ones not yet billed (rent, payroll, software), tells you what leaves the bank and when. The AP aging report is where that list starts, and its total should tie to accounts payable on the balance sheet.
Days payable outstanding, the average number of days you take to pay, is the summary number lenders and investors look at. Rising DPO can mean better terms, or it can mean you are quietly paying late. The aging report shows which: bills in the past-due columns are the second kind.
Credits, partial payments and disputes
Terms apply to what you actually owe. If a vendor issues a credit memo for a short shipment or a billing error, record it against their open bills (debit accounts payable, credit the expense the original bill hit) and pay the net. Paying the full bill and waiting for a refund leaves cash with the vendor and a debit balance in AP that someone has to chase.
When you dispute part of an invoice, pay the undisputed part on time and hold only the rest, with the reason recorded on the bill. That keeps you inside the terms for the amount you agree with, and many contracts require it. A bill held in full over a small disagreement is the most common way a good vendor relationship turns into a collections call.
Late payment and late fees
A late fee or interest charge is only owed if the contract, or terms you accepted, provide for it, and state law limits how much a vendor can charge. Check before you pay a fee you don’t recognize. Record any you do pay as an expense in its own account (interest expense or late fees), not folded into the vendor’s normal cost, so the cost of paying late is visible every month.
The larger cost is to the relationship. Small vendors depend on being paid on time, and a customer who pays late gets put on prepayment or dropped. If cash is tight, ask for longer terms before the due date. Most vendors would rather agree to Net 45 than chase a Net 30 invoice.
Common questions
Does Net 30 start from the invoice date or the date we received it?
Usually 30 days from the invoice date, not from when you received it, unless the contract says otherwise. “Net 30 EOM” means 30 days from the end of the month the invoice is dated in. Read the contract and the invoice; when they disagree, the signed contract normally governs.
Should we always take a 2% early-payment discount?
Often, if you have the cash. Skipping a 2/10 net 30 discount works out to about 37% a year on a simple annualized basis. Unless your cash is earning more than that or you’d need to borrow at a higher rate to pay early, take it. Lower discounts or longer net periods change the math, so run it for each offer.
Can a vendor charge us late fees?
Only what the contract allows and the law permits. Late fees and interest come from the agreement or the invoice terms you accepted, and states cap what can be charged. If a fee appears that you never agreed to, raise it with the vendor before paying it.
Can we negotiate longer terms?
You can ask; many vendors agree, especially for a customer that has always paid on time. Ask before the bill is due, not after. Paying late without asking costs more than the fee: vendors put accounts on hold, demand prepayment, or report late payment to business credit bureaus.
Terms in this guide
Each one has its own page in the founder glossary. Hover for the short version, or open the full entry.
Keep going
From here: a free tool to try it on your own numbers and the lesson behind it.
- Free toolDuplicate paymentsSame vendor, same amount, close in time — plus the same reference whatever the date.
- Free toolPayment terms & due dates2/10 net 30 is borrowing at 37% a year. This tells you whether to take the discount.
- Lesson 11 · 10 minThe balance sheetThe other three account types, at one instant — and the single line where the month's profit lands, which is what ties the two statements together.
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More founder guides
- Accounts payableAccounts payable process for startups: intake to paymentHow a bill moves from inbox to paid: intake, coding, approval, scheduling and recording, plus AP aging and who approves what at a 10-person startup.
- AccrualsAccrued expenses vs accounts payable: the differenceAP is a bill you’ve received; an accrued expense is a cost incurred before the bill arrives. When to accrue, and how reversing entries work, by example.
- Paying vendorsHow to pay vendors: ACH vs wire vs check vs cardACH, wire, check or card: what each payment rail costs, how long it takes, where the fraud risk sits, and how each payment is recorded in the books.
- InvoicingWhat to put on an invoice: a field-by-field guideThe fields a B2B invoice needs to get paid on time: legal names, a numbering sequence, dates, terms, tax lines, PO and remit-to, and how to fix one.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA before you act on them.