Comfort Ltd. offers customers payment terms on invoices of 2/10, n30. A customer is unable to pay the invoice when received but will have the funds by month end. The customer has the option of borrowing on its 12% line of credit and paying off the invoice or waiting until the end of the 30 days. What should the customer do?

Question

Quizplus · Accepted Answer

By borrowing the funds on the tenth day and paying the invoice, the customer will be able to take advantage of the 2% discount offered by Comfort Ltd. This is a better option than waiting until the end of the 30 days or borrowing at a later date, as both of these options will result in the customer paying more in interest or missing out on the discount. Borrowing upon receipt of the invoice and paying immediately or waiting until the end of the month to pay from the customer's own cash do not allow the customer to take advantage of the discount.