The Mathematics of Money

356 Chapter 8 Mathematics of Pricing

The period of time allowed before the payment is considered late may also be indicated.

“2/15, n/30” indicates that a 2% cash discount is offered for payment within 15 days, and

that between the 16th and 30th day the payment is considered on time, but no discount is

offered. The n stands for “net.” After the 30th day, payment would be considered late and

late payment penalties and/or interest charges may be applied.

There are several different methods that are commonly used to determine the discount

period. Some of the more commonly used ones are summarized in the table below:

Dating Method

Discount Period

Begins: Abbreviation Example

Ordinary On the invoice date None. Assumed if not

otherwise indicated.

“2/10, n/30”

End of month On the end of the

month following the

invoice date

EOM “2/10, n/30, EOM”

Proximo On the end of the

month following the

invoice date

PROX “2/10, n/30, PROX”

Receipt of goods When the buyer

receives the

merchandise

ROG “2/10, n/30, ROG”

Postdated As of date indicated

on the invoice

AS OF “2/10, n/30, AS OF

3/7/08”

“End of month” and “proximo” dating are essentially the same. Proximo is a Latin term

that has been used traditionally to indicate this dating method. EOM is probably the more

modern usage, though both terms are still in use.

Example 8.3.10 Ned’s Furniture Galaxy ordered a shipment of dining room sets.

The invoice was dated March 14, 2007, and the order arrived on March 28, 2007. The

manufacturer offers a 2½% cash discount for payment within 10 days. To take advantage

of this discount, when must Ned make payment if the dating method is (a) ordinary dating,

(b) end of month, (c) receipt of goods, or (d) postdated as of May 1, 2007?

(a) With ordinary dating, the clock starts ticking on the invoice date, March 14. Answer:

March 24, 2007.

(b) With EOM dating, the clock starts ticking at the end of March. Answer: April 10, 2007.

(Note: Even though the discount period clock doesn’t start ticking until the end of March, if

Ned pays before the end of the month he still gets the cash discount.)

(c) The furniture arrived on March 28, so that’s when the period begins. Answer: April 7,

2007.

(d) The discount period begins on May 1, 2007. Answer: May 11, 2007. (Just as with EOM,

Ned receives the discount even if he pays before the “as of” date.)

Payments sent by mail are customarily considered to have been made on their postmark

date, though this can not always be assumed. Some sellers consider the payment to have

been made only when it is actually received. There may be other special rules used by a

seller that deviate from the general methods explained above. If a seller’s terms are unclear,

naturally the best course of action is to request clarifi cation.

Sellers sometimes also use another variation on these methods, known as extra dating.

Extra dating is really nothing more than an extension of the discount period. An invoice

marked “2/15–45X” would indicate that ordinary dating is being used, and that the usual

15-day discount period is being extended by an additional 45 days, for a total of 60 days.

Such an offering would be equivalent to “2/60”; the distinction is really just a matter of

emphasis that the 45 days are “extra,” above and beyond what would normally be offered.

Extra dating may be used, for example, by a seller trying to clear out excess inventory by

encouraging merchants to place orders sooner than they otherwise might.