7 Difference Between Trade Discount and Cash Discount

Trade discount and cash discount are the two types of the discount. These days, discounts are very important to increase sales of the products. Discount attracts more customers, in malls a general term is shown 20% off. Trade discount is the fixed discount offered on the products at bulk purchase. While a cash discount is offered on the invoice for the early payments.

Discount plays an important role to increase the sale and profits. There are many differences between trade discount and cash discount. Before knowing the difference, first know about the definition of trade discount and cash discount. In this article we will discuss Trade discount and cash discount, and differences between trade discount and cash discount.

Trade discount vs Cash discount

Sr. No.	Trade Discount	Cash Discount
1	Trade discount is provided from the list price.	Cash discount is offered at the time of cash payment.
2	Trade discount is based on the amount of product purchase. More purchases, more discounts.	Cash discount is based on the time for earlier cash payment.
3	Trade discount is fixed.	Cash discounts change from customer to customer and time to time.
4	Trade discount is only for increasing sales or bulk purchase.	Cash discount encourages customers for the early payments.
5	Trade discount is applicable on both cash and credit discount.	Cash discount is applicable only for cash payments.
6	Trade discount is not recorded.	Cash discounts are recorded.
7	Trade discount is deducted before the invoice.	Cash discount is deducted from the invoice value.

Trade discount

                       Trade discount is the discount which is offered to the customers on listed or catalog price. This discount is openly written in the product. Like 20% Off on 5 products. This is the discount offered before the invoice. This discount is offered to increase the sale of the products which leads to more profits.

This discount encourages the people to purchase more products. Due to the increase in the purchase discount also increases. This discount is not considered in the billing or invoice

For example

Ravi purchases 100 boxes from Yash for rs 600 each. Yash offers him 15% trade discount so the net amount payable by Ravi is = (100×600)-15%= 60000-9000= 51000.

Cash discount

Cash discount is the discount which is offered to the at the time of cash payment on the invoice value. This discount is only for the to increase the cash payment or flow. In this discount a time is fixed for the customer for payments and some discount is offered. This discount states that if the customer pays cash payment before the fixed time.

This discount encourages the buyer to make payments at the earliest in order to avail cash discount. In this case buyer has to pay less amount. This discount is offered when buyer make early payments.

This discount is recorded in the book. This discount is only allowed within the stipulated time. This discount is calculated on the total payable amount. This discount varies customer to customer.

Example

Ravi purchases 100 boxes from Yash for rs 600 each. Yash offers him 15% trade discount so the net amount payable by Ravi is = (100×600)-15%= 60000-9000= 51000. And yash offered him a 5% cash discount for the 30 days stipulated time. In this case Ravi has to be paid = 51000-5% = 48450.

Main difference between trade discount and cash discount

1. Trade discount is provided from the list price. Cash discount is offered at the time of cash payment.
2. Trade discount is based on the amount of product purchase. More purchases, more discounts. While cash discount is based on the time for earlier cash payment.
3. Trade discount is fixed. Cash discounts change from customer to customer and time to time.
4. Trade discount is only for increasing sales or bulk purchase. While cash discount encourages customers for the early payments.
5. Trade discount is applicable on both cash and credit discount. While cash discount is applicable only for cash payments.
6. Trade discount is not recorded. On the other hand, cash discounts are recorded.
7. Trade discount is deducted before the invoice. And cash discount is deducted from the invoice value

Conclusion

         Discount is very important to increase sale and profits. Trade discounts and cash discounts are offered to customers to encourage more purchase and early payments. A customer can take advantage of both the discount if that customer makes payments in cash mode.

This is all about the difference between trade discount and cash discount. Hope this article is helpful for you. If you have any doubts feel free to comment on us. For more interesting topics like this please visit our website.