What does 2/10 net 30 mean on an invoice?

The notation reads as: [discount %] / [discount window in days] net [full-payment due date]. So '2/10 net 30' means a 2% discount for payment within 10 days, full payment due in 30 days. '1/15 net 45' means 1% off within 15 days, full payment due in 45 days.

The annualized cost to the buyer of NOT taking a 2/10 net 30 discount is approximately 36.5% APR. The math: the buyer is effectively paying 2% to use the seller's money for an extra 20 days (days 11–30). Annualized: (2% ÷ 20 days) × 365 = 36.5%. Since most business borrowing costs far less than 36.5%, buyers with available cash or access to cheap credit should always take the discount.

From the seller's perspective, offering early-pay discounts accelerates cash at a cost. On a $10,000 invoice with 2/10 net 30, accepting the discount means receiving $9,800 now instead of $10,000 in 30 days. Whether that trade is worthwhile depends on your cost of capital. If you are carrying a line of credit at 15% APR, an early-pay discount at 36.5% equivalent is not cost-effective — the line of credit is cheaper.

Early-pay discounts should be specified in the contract or on the invoice. Clients who take a discount that was not offered — reducing their payment without authorization — are short-paying the invoice, and the discount amount remains collectible.