On the surface, 2% 10 Net 60 sounds like a smart compromise. Offer customers a 2% discount if they pay within 10 days; otherwise, full payment is due in 60. It signals flexibility. It encourages faster payment. It feels commercially competitive.
In distribution, especially in trade-heavy environments, these terms are common. Large retailers expect them. Smaller resellers often request them. Sales teams see them as a lever to close deals.
What is less frequently analysed is the actual cash impact.
When margins are tight and inventory turnover matters, 2% 10 Net 60 can either improve liquidity or quietly erode it. The difference lies in how it is managed.
A 2% discount for payment 50 days earlier is not trivial. When you annualise it, the implied cost of capital is significant.
Consider the maths. A customer who takes 2% to pay 50 days earlier is effectively receiving a very high annualised return on that decision. From your side, you are effectively paying that rate to accelerate cash.
In a distribution business with thin margins, losing 2% of revenue can materially affect gross profit. If your average margin is 15% and you give up 2%, that is more than 13% of your margin gone.
The decision should be deliberate, not automatic.
One of the first questions to ask is how many customers actually take the discount.
In practice, businesses often find:
If only a small percentage of customers take the early payment discount, you may not be achieving the intended cash acceleration benefit.
Review:
Without this breakdown, you cannot assess whether the trade-off is working.
Let’s take a simplified example. A distributor generates $5 million in monthly sales under 2% 10 Net 60 terms.
If 40% of customers take the discount and pay on day 10, you receive $2 million earlier than you otherwise would. That can materially improve liquidity.
However, you also sacrifice $40,000 in margin on that $2 million.
If funding costs are high and working capital is tight, that trade-off may make sense. If you have strong cash reserves and low borrowing costs, the discount may not be justified.
The key is comparing:
This is a finance decision, not purely a sales tactic.
The greater risk is not the 2% discount itself. It is what happens at day 61.
Some customers who ignore the early payment incentive also ignore the Net 60 deadline. If follow-up is inconsistent, 60-day terms quietly become 75 or 90 in practice.
At that point, you are financing inventory for three months while still offering a discount to early payers.
Strong distribution businesses track:
When Net 60 becomes Net 75 in reality, cash pressure increases rapidly.
Not all customers should receive identical terms.
Consider segmenting by:
Reliable customers with strong payment behaviour may not require an incentive. Habitually late payers may not respond to one.
Extending 2% 10 Net 60 across the entire customer base can be unnecessarily expensive.
In distribution, inventory turnover is critical. If suppliers require payment in 30 days but customers pay in 60, even with early payment discounts, your business funds the gap.
Review:
If inventory turns in 45 days and customers pay in 60, you have a built-in working capital deficit.
Adjusting supplier negotiations or tightening credit control may have more impact than adjusting discount structures.
Discount terms only work if customers believe you are serious about the Net 60 deadline.
Implement:
Some distributors adopt an account receivable automation platform to enforce reminder cadence and monitor uptake patterns. The objective is not aggressive collection, but consistency. When customers see predictable behaviour, payment discipline improves.
Distribution margins vary by product category. Offering a blanket 2% discount across all SKUs may not make sense.
Analyse:
In some cases, early payment incentives may be justified only for high-exposure, lower-risk categories.
Offering 2% 10 Net 60 terms in distribution is not inherently good or bad. It is a financial lever that requires measurement and discipline. The discount has a real cost. The payment window has real working capital implications.
If customers take the discount and pay reliably, cash flow may improve. If term drift sets in or uptake is low, margin erodes without meaningful liquidity gain.
Careful modelling, segmentation, and consistent follow-up are essential. Whether supported by internal processes or an accounts receivable automation platform, the goal remains clear: align payment behaviour with inventory cycles and protect margin while safeguarding cash.
Terms should serve your balance sheet, not quietly weaken it.
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