Payment Terms

(noun)

Forms of trade credit which specify that the net amount (the total outstanding on the invoice) is expected to be payment received in full 10, 15, 30, or 60 days after the goods are dispatched by the seller, or 10, 15, 30 or 60 days after the service is completed. Net 30 or Net 60 terms are often coupled with a credit for early payment.

Related Terms

Examples of Payment Terms in the following topics:

  • Terms of Trade

    • Terms of trade credit include the amount of time allowable for payment to be received, including any potential discounts.
    • An example of a common payment term is Net 30, which means that payment is due at the end of 30 days from the date the invoice is issued.
    • Other common payment terms include Net 45, Net 60 and 30 days end of month.
    • Net 60 is less used because of its longer payment terms.
    • The operator may sign a franchising agreement, under which the distributor agrees to provide ice cream stock under the terms "Net 60" with a ten percent discount on payment within 30 days, and a 20% discount on payment within 10 days.

  • Impact of Payment Frequency on Bond Prices

    • Payment frequency can be annual, semi annual, quarterly, or monthly; the more frequently a bond makes coupon payments, the higher the bond price.
    • The payment schedule of financial instruments defines the dates at which payments are made by one party to another on, for example, a bond or a derivative.
    • However, the present values of annuities of coupon payments vary among payment frequencies.
    • The present value of an annuity is the value of a stream of payments, discounted by the interest rate to account for the payments are being made at various moments in the future.
    • Where n is the number of terms or number of payments n =1 (annually), n = 2 (semi-annually), n = 4 (quarterly)... and i is the per period interest rate.

  • Annuities and Mortgages

    • We raise the first term in Equation 18 to the fourth power because your initial payment occurred at the end of period 1, and has earned four years of interest.
    • Finally, the last term has a zero exponent, and the final $20,000 does not earn interest.
    • Thus, we can factor the FV terms from all interest terms in Equation 22.
    • As you can see, Equation 24 would have 240 terms.
    • A balloon payment is a person pays a low monthly payment every month.

  • Components of the Cash Budget

    • The cash budget includes the beginning balance, detail on payments and receipts, and an ending balance.
    • Dividends received: Dividends are payments made by a corporation to its shareholder members.
    • Other payment - Which includes Advertising, Selling expenses, Administrative expense, Insurance expenses, Rent expenses, etc.

  • Balance of Payments

    • Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest of the world.
    • Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest of the world.
    • These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers.
    • The term balance of payments often refers to this example: a country's balance of payments is said to be in surplus (balance of payments is positive) by a certain amount if sources of funds (such as export goods sold and bonds sold) exceed uses of funds (such as paying for imported goods and paying for foreign bonds purchased) by that amount.
    • There is said to be a balance of payments deficit (the balance of payments is said to be negative) if the former are less than the latter.

  • Setting a Credit Policy

    • To establish a credit policy, a company must establish credit standards, credit terms, and a collection policy.
    • After establishing credit standards, the firm must decide on the length of the period that would be allowed before payment must be made and whether or not they will offer a discount for early payments.
    • Others send out a reminder notifying customers that their payment is late.
    • Some companies may even take legal action at the first late payment.
    • Capacity: Will the borrower have enough cash flow to make its payments?

  • Bonds Issued at Par Value

    • Next, it generally pays interest during the term of the bond.
    • Finally, it pays off the obligation by repaying the face amount and the last interest payment.
    • When the bond is issued, the company must record a liability called "bond payable. " This is generally a long-term liability.
    • Bond Interest Expense - debit interest payment (increase interest expense line)
    • First, it must record any final interest payments that are made.

  • Times Interest Earned Ratio

    • Times Interest Earned Ratio = (EBIT or EBITDA) / (Required Interest Payments), and is indicative of a company's financial strength.
    • The Times Interest Earned Ratio indicates the ability of a company to meet its required interest payments , and is calculated as:
    • The Times Interest Earned Ratio is used by financial analysts to assess a company's ability to pay its required interest payments.
    • If Company A's EBIT is 750,000 and its required interest payments are 150,000, itsTimes Interest Earned Ratio would be 5.
    • If a company's Times Interest Earned Ratio falls below 1, the company will have to fund its required interest payments with cash on hand or borrow more funds to cover the payments.

  • The Balance of Payments

    • The balance of payments (BOP) is a record of all monetary transactions between a country and the rest of the world.
    • The balance of payments (BOP) is a record of all monetary transactions between a country and the rest of the world.
    • The BOP is given for a specific period of time (usually a year) and in terms of the domestic currency.
    • Whenever a country receives funds from a foreign source, a credit is recorded on the balance of payments.
    • It includes the balance of trade (net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors), and cash transfers.

  • Bonds Payable and Interest Expense

    • Valley made the required interest and principal payments when due.
    • To record periodic interest payment.
    • The income statement for each of the 10 years (2010-2018) would show Bond Interest Expense of USD 12,000 (USD 6,000 X 2); the balance sheet at the end of each of the years (2010-2018) would report bonds payable of USD 100,000 in long-term liabilities.
    • Each year Valley would make similar entries for the semiannual payments and the year-end accrued interest.
    • Summarize how a company would record the original issue of the bond and the subsequent interest payments