Association for Financial Professionals (AFP) Practice Exam

Which terms describe a payment that is due in 30 days, eligible for a 1% discount if paid within 15 days?

1. Net 30, 1/15

2. 30 net 1/15

3. 1/30 net 15

4. 1/15 net 30

The correct answer is: 1/15 net 30

The correct choice conveys the specific terms of payment: a 1% discount if paid within 15 days and the total amount due in 30 days. This terminology is standard in financial agreements to clarify the timing and conditions for discount availability. In this case, "1/15" indicates the discount—specifically that a 1% discount is available if the invoice is paid within 15 days. The "net 30" part indicates that the full amount of the invoice is due in 30 days. Together, these terms provide clear guidelines for both the discount and payment deadline, which is essential for proper financial management and cash flow planning. In contrast, other options either misrepresent the timing of the discount or the overall payment due date. Using an incorrect arrangement of these terms can lead to misunderstandings regarding payment expectations between the buyer and seller. This illustrates the importance of accurately knowing and utilizing payment terms in financial contexts.