Types of Discounts: Trade, Cash, and Quantity

Types of Discounts

• A discount is a reduction in the selling price of a good or service.
• Common types include trade, cash, quantity, and special discounts.

Trade Discount

• Trade discounts are price reductions for traders/resellers.
• This reduction enables resellers to maintain a healthy profit margin.
• The discount size varies based on the quantity purchased by the reseller.

Cash Discount

• Cash discounts are price reductions to encourage prompt bill settlement or cash payments.
• An example of cash discount notation is "5/20," which means a 5% discount if the bill is settled within 20 days.
• "n/30" means the full amount is due 30 days after the invoice date.

Quantity Discount

• Quantity discounts are price reductions for purchasing large quantities.
• The larger the quantity purchased, the greater the discount.
• Purchasing 50-100 bags of cement gets a 10% discount.
• Purchasing 101-200 bags of cement gets a 15% discount.

Special Discount

• Special discounts are price reductions for various reasons.
• Loyalty and being a regular customer can qualify the buyer for a special discount.

Goods on Consignment

• Consignment is when goods are left with an authorized third party to sell.
• The consignment shop sells items and pays a portion of the profit to the original supplier.
• The seller retains ownership of the goods until they are paid for; unsold goods are returned.

Advantages of Consignment

• The seller gains exposure for their product in retail outlets.
• The reseller is able to stock goods without spending their own money.

Disadvantages of Consignment

• The seller lacks control over the placement of goods on the reseller's shelves.
• Payment to the seller occurs only when the goods are sold.

Documents in Sales and Marketing

• Numerous documents flow between buyer and seller.
• One such document is a quotation.

Quotation

• The seller sends a quotation in response to an enquiry note.

Invoice

• An invoice is prepared by the seller and sent to the buyer.
• The invoice indicates the amount of money owed.
• It outlines the quantity and cost of goods sold, as well as the terms of trade.
• An invoice includes if discounts are provided and the due date for payments.
• Multiple copies of the invoice are prepared, one each for the customer, the sales office, and the accounts office.

Advise Note

• An advise note is sent ahead of the goods to inform the buyer of an incoming delivery.

Delivery Note

• A delivery note is made in duplicate.
• A delivery note acknowledges receipt of the purchase.
• The buyer and delivery person each retain a copy.

Electronic Invoicing

• Electronic invoicing involves sending invoices via email.
• It goes directly to the customer which offers benefits.

Benefits of Electronic Invoice Presentment and Payment (EIPP)

• Includes reduction of costs, reduction in paperwork, significantly reduced processing time.
• Invoices are delivered securely and immediately.

Pro-Forma Invoice

• A Pro-Forma Invoice resembles a regular invoice.
• A Pro-Forma Invoice is an estimated invoice sent by a seller to buyer.
• It is sent when payment is requested in advance, to an unknown seller.
• It provides the buyer with an estimate of the total cost.

Classwork Questions

• A discount is a reduction in the selling price of goods or services.
• A cash discount encourages customers to settle their bills quickly.
• A cash discount notation such as indicates how much of an incentive and how quickly the bill must be paid for it to apply.
• A quantity discount is dependent on the quantity of purchases.
• A special discount is available for various reasons, e.g., loyalty
• Consignment involves the authorized third party store that sells goods on behalf of the original supplier.
• One advantage of consignment of the seller includes gaining exposure for products in retail outlets.