Credit Terms

Posted in Finance, Accounting and Economics Terms, Total Reads: 231
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Definition: Credit Terms

Credit terms are defined as the payment indicators terms in relation to any sales conducted by an organization. It is the time, which the customer has to pay the amount. They are common from the supplier’s end to offer early payment option to the consumers to have accelerated influx of cash.

Credit terms are mentioned on the customer invoice. The syntax that is followed for credit terms can be explained as follows:

 

TERM STRUCTURE

It states the number of days given to the customer to pay the debt in order to get the advantage of the early payment credit terms. For example, the terms stated at 4/10 net 30 refers to that 4% discount would be given if the customer pays the amount in 10 days. No discount is there if given in 30 days. So, it’s the customers’ discretion whether to take advantage of the credit terms or make a normal payment after 30 days.

 

The concept of credit term can be broadened to include the following:

1. Amount of credit extended to the customer

2. Early payment discount terms

3. Penalty for late payments

4. Time period for the payments to be made

 

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