Discounts and allowances are reductions to a basic price of goods or services.
They
can occur anywhere in the distribution
channel, modifying either the manufacturer's list price (determined by the
manufacturer and often printed on the package), the retail price (set by the
retailer and often attached to the product with a sticker), or the list price
(which is quoted to a potential buyer, usually in written form).
There
are many purposes for discounting, including; to increase short-term sales, to
move out-of-date stock, to reward valuable customers, to encourage distribution channel members to perform a function, or to
otherwise reward behaviors that benefit the discount issuer. Some discounts and
allowances are forms of sales
promotion
Discount and allowance types
Prompt payment discount
Trade Discounts are deductions in price given by the wholesaler or manufacturer to the retailer at the list
price or catalogue price. Cash Discounts are reductions in price given by the creditor to the debitor. These discounts are intended to speed
payment and thereby provide liquidity to the firm. They are sometimes used as a promotional device. we also explain that discount is relaxation in
price.
Preferred payment method discount
Some retailers
(particularly small retailers with low margins) offer discounts to customers
paying with cash, to avoid paying fees on credit card transactions.
Partial payment discount
Similar to the Trade discount,
this is used when the seller wishes to improve cash
flow or liquidity, but finds that the buyer typically is
unable to meet the desired discount deadline. A partial discount for whatever
payment the buyer makes helps the seller's cash flow partially.
Sliding scale
A discount offered based on one's ability to pay. More common with non-profit organizations than with for-profit retail.
Forward dating
This is where the purchaser doesn’t pay for the goods until well after they arrive. The date on the invoice is moved forward - example: purchase goods in November for sale during the December holiday season, but the payment date on the invoice is January 29.
Seasonal discount
These are price reductions
given when an order is placed in a slack period (example: purchasing skis in
April in the northern hemisphere, or in September in the southern hemisphere).
On a shorter time scale, a happy hour may fall
in this category. Generally, this discount is referred to as
"X-Dating" or "Ex-Dating". An example of X-Dating would be
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