Credit terms of 2/10,net 30 have a lower effective cost than credit terms of 2/10,net 60 because in the first case the loan will be repaid sooner.

Question

Quizplus · Accepted Answer

The effective cost of credit terms is determined by the discount offered and the period over which the full payment can be delayed, not by the speed of repayment within the discount period. Both terms offer the same discount for early payment; the difference in net days (30 vs. 60) affects the length of the free credit period, not the cost of taking the discount.

Credit Terms of 2/10,net 30 Have a Lower Effective Cost