Cash Discount term 3/15, net 40 means ______________.

3% discount if payment in 15 days, otherwise full payment in 40 days

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15% discount if payment in 3 days, otherwise full payment 40 days

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3% interest if payment made in 40 days and 15% interest thereafter

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None of the above

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Solution

The correct option is C 3% discount if payment in 15 days, otherwise full payment in 40 days
To speed up the collection from customer, a cash discount is allowed by the organization. If the payment is done within the specified period, a certain percentage is allowed as cash discount.
A format is followed to express the discount percentage which would vary as per the time allowed for payment.
As per such format, 3/15 net 40 means normal credit period is 40 days, if customer pays the amount in 15 days, a cash discount of 3% will be allowed to the customer.

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