Page 123 - CalcBus_Flipbook

CH 13] Calculating Business 13-9

cannot make the 10 day marker a 2% discount is offered when payment is made by 30 days
of delivery. If the buyer cannot meet that time frame for payment then the supplier is
demanding the whole amount (net) be paid within 60 days, after which the supplier may
apply a carrying charge for ‘delinquent’ payment. The 60 days is the credit period offered by Another Option for
the supplier. Note also that the numbers to the left of the diagonal line represent percents of really delinquent
payers: Put them
an additional discount for prompt payment, and the n in the last term indicates that the net on a prepay basis.
amount on the invoice is due. The net amount on the invoice represent what is due after the First pay & then the
other discounts have been calculated and applied, prior to invoicing. goods will be
For the buyer to enjoy the cash discounts written in the invoice terms depends on the delivered.
buyer making the payment within the discount days on the invoice. The calculation for the
discounts noted in the terms function have already been discussed.

Example: What amount would satisfy the payment on an invoice for $1,500 worth of
merchandise, terms 3/10, 1/30, n/60, if paid (a) within 10 days from the
date of the invoice, or (b) within 11 to 30 days from the date of the invoice,
or (c) within 31 to 60 days from the date of the invoice?

Solution algorithm: (a) Payment within 10 days from date of invoice:

$1,500 net amount of invoice (after trade discounts)
− 45 cash discount (3% of $1,500)
$1,455 payment in full

(b) Payment within 11 to 30 days from date of invoice:

$1,500 net amount of invoice
− 15 cash discount (1% of $1,500)
$1,485 payment in full 13

(c) If payment is not made within 30 days from date of invoice, the
cash-discount period has expired and the discounts are
forfeited. Therefore, to satisfy the invoice, the full amount of
$1,500 is to be paid.

End of Month Dating. End of Month is abbreviated on an invoice as EOM and is End of month;
commonly used in the terms shown on an invoice. EOM refers to when the payment is due. EOM: An attribute
In this case, the invoice is due within 30 days after receiving it, but 30 days doesn’t always used in many
fall on the end of a month. When the credit terms list EOM, usually the debtor has until the business credit
end of the month in which payment is due. terms to describe
Invoices are typically marked with a discount period, the net amount due, and some the due date and
additional information. For example, an invoice that is marked 4/10, 2/30 EOM lists a cash time payment is
required. Many
discount, net payment terms, and a specific payment date. Depending on date of receipt, suppliers and
EOM can extend the total time for payment. Goods received in one month may not have a vendors give
terminal due date until the End Of the next Month. Goods received 12 March would not manufacturers and
have a terminal due date until the end of April, 30 April. retailers a cash
“4/10” refers to the cash discount. If the invoice is paid within the first ten days after discount for paying
receiving it, the seller will discount the order by 4 percent. This ten day window is the invoices early and in
discount period. A 4 percent discount is quite advantageous for most businesses. cash.
Companies almost always try to pay these bills early to receive the cash discount unless
they are under tight cash flow restrictions.
“2/30” refers to the net amount due in 30 days with a 2 percent discount. If the invoice
is not paid within the first ten days to receive the 4% discount, the balance of the invoice is
due 30 calendar days from receipt. This allows the company a few weeks to pay for the
goods.
Consider that EOM can also mean that the payer must make payment within a certain
number of days following the end of the month. Thus, terms “net 10 EOM” means that
payment must be made in full within 10 days following the end of the month.

Example A: An invoice totaling $1,200 with terms of 3/10 EOM is dated December 5.
What amount would be required to pay this invoice in full if payment is
made on December 12?

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