Discounts and allowances

Discounts are reductions applied to the basic sale price of goods or services. Allowances against price may have a similar effect.

Discounting practices operate within both business-to-business and business-to-consumer contexts. Discounts 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 a quoted price specific to a potential buyer, often given 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There are many purposes for discounting, including to increase short-term sales, to move out-of-date stock, to reward valuable customers, to encourage distribution channel members to perform a function, or to otherwise reward behaviors that benefit the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. Many are price discrimination methods that allow the seller to capture some of the consumer surplus.

Dealing with payment

Trade discounts

Trade discounts are deductions against the list price or catalogue price which are charged by a wholesaler or manufacturer to a retailer or supplier who then deals with the end customer. The discount then enables the retailer to charge the end customer the list price and cover its own costs/profit.

Prompt payment discount

Cash discounts are reductions in price given to the debtor to motivate the debtor to make payment within specified time.