What is Net of Discount?

Net of Discount

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Net of Discount

“Net of discount” is a term used in accounting and finance to refer to the amount that remains after all applicable discounts have been subtracted from the original price. This term is often used in the context of purchases made on credit, where the seller may offer the buyer a discount if the buyer pays the invoice early.

For example, terms such as “2/10, net 30” on an invoice mean that the buyer gets a 2% discount if they pay within 10 days (the discount period), but the full invoice amount is due within 30 days (the credit period). If the buyer takes the discount, the payment is made “net of discount.

Example of Net of Discount

Imagine a furniture retailer named “HomeComfort” purchases $20,000 worth of furniture from a manufacturer. The manufacturer offers terms of “3/15, net 60” on the invoice. This means HomeComfort can get a 3% discount if it pays within 15 days. Otherwise, the full amount is due within 60 days.

If HomeComfort decides to pay within the discount period of 15 days, they are eligible for a 3% discount on the $20,000 invoice:

Discount = $20,000 * 3% = $600

Therefore, the payment amount “net of discount” would be:

Net of discount = $20,000 – $600 = $19,400

So, HomeComfort would pay $19,400, instead of $20,000, by taking advantage of the early payment discount.

In this case, the amount “net of discount” is the amount paid after all discounts have been accounted for. This term emphasizes that a discount has been applied and that the stated amount is what remains after subtracting the discount.

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