What is the credit period?

Credit period is the period that a company extending credit to a customer allows the customer in which to pay for an invoice. For example:

• If the company grants terms of 2/10 net 30, this means the credit period is 10 days if the customer chooses to take a 2% early payment discount, or the credit period is 30 days if the customer chooses to pay the full amount of the invoice.
• If the company grants terms of 1/5 net 45, this means the credit period is 5 days if the customer chooses to take a 1% early payment discount, or the credit period is 45 days if the customer chooses to pay the full amount of the invoice.

The credit period does not refer to the amount of time that the customer takes to pay an invoice, but rather to the period granted by the seller in which to pay the invoice. Thus, if the seller allows 30 days in which to pay and the customer pays in 40 days, the credit period was only 30 days.

If the seller is requiring multiple payments over time, then the credit period is the interval from when credit is first extended until the last payment is supposed to be made by the customer. Thus, if the seller allows for three monthly partial payments, with the last payment due in 90 days, then the credit period is 90 days.

Related Topics

Collection effectiveness index 
Credit application terms 
Credit scoring models 
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