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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 to motivate the debitor to make payment with in specified time.Trade discounts are most frequent in industries where retailers hold the majority of the power in the distribution channel (referred to as channel captains).Trade discounts are given to try to increase the volume of sales being made by the supplier.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).Generally there are two types: Cumulative quantity discounts, also called accumulation discounts, are price reductions based on the quantity purchased over a set period of time.
The most common types of discounts and allowances are listed below.
These discounts are intended to speed payment and thereby provide liquidity to the firm. Some retailers (particularly small retailers with low margins) offer discounts to customers paying with cash, to avoid paying fees on credit card transactions.
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 trade rate discount, sometimes also called "trade discount", is offered by a seller to a buyer for purposes of trade or reselling, rather than to an end user.
For example, a pharmacist might offer a discount for over-the-counter drugs to physicians who are purchasing them for dispensing to the physicians' own patients.