Question

Credit terms of 1/5 net 70 indicate that the buyer has:

a) 5 days to remit payment in full.
b) 70 days to remit payment in full and no discount is available
c) 1 day to remit payment minus a 5% discount, otherwise payment in full is due in 70 days
d) 5 days to remit payment minus a 1% discount, otherwise, payment in full is due in 70 days

Answer 1

Credit terms of 1/5 net 70 allow for a 1% discount if payment is made within 5 days; otherwise, the full payment is due in 70 days.

Step-by-step explanation:

Credit terms of 1/5 net 70 indicate that the buyer has 5 days to remit payment minus a 1% discount, otherwise, payment in full is due in 70 days. This means that the buyer can take advantage of the discount by paying within the initial 5-day period, and if not, the total invoice amount needs to be settled by the end of the 70-day period without the discount. Credit terms are essentially a way to incentivize earlier payment and ensure that the seller receives funds within a reasonable period, while still offering some flexibility to the buyer.