Question

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

• A. 3% discount if payment in 15 days, otherwise full payment in 40 days
• B. 15% discount if payment in 3 days, otherwise full payment 40 days
• C. 3% interest if payment made in 40 days and 15% interest thereafter
• D. None of the above

Answer 1

Answer: (A)

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.