Difference Between Trade Discount and Cash Discount

Main Difference

Discounts are the cut off in the prices and services being offered by the seller to the buyer. The discounts are given by the seller to encourage the customers to buy more and to facilitate them with the best possible services in the low rates. As we know that more sales for the companies mean the higher profits for the companies, so the discount is one of the initiatives taken by them to make an increase in the sales. The other selling techniques adopted by the firms are the advertisement, endorsements, new product lines and prices on the purchase of the products. A misconception prevails that when one company discount it bears the loss, but it isn’t the case as the company cut off the profit margin to some extent and tried to grab more profits by engaging buyers in purchasing more of their products. There are two types of discounts, given to the buyer by the sellers; trade discount and the cash discount. Trade discount is the discount offered by the seller at the time of purchase on the price list of the commodity or the catalog of prices for that product or service. On the other hand, the cash discount is the discount offered by the seller at the time of the payment; this deduction is given of invoice.

Comparison Chart

Trade DiscountCash Discount
DefinitionA trade discount is the concession, incentive or the deduction given by the seller to the buyer at the time of the purchase of the products.A cash discount is the concession, incentive or deduction in the invoice of products at the time of payment of the purchases.
ObjectiveThe main objective behind this type of discount is to engage the buyer to a greater extent and let him buy more and more products.The actual reason for the cash discount is to ensure the payment of product by the buyer within the specified time with avoiding the credit risk.
RecordsNo records of trade discounts are kept in the record books by the both parties, seller or the buyer.Are kept in record books of both the parties.

What is Trade Discount?

A trade discount is the concession, incentive or the deduction given by the seller to the buyer at the time of the purchase of the products. The main objective behind this type of discount is to engage the buyer to a greater extent and let him buy more and more products. No records of these discounts are kept in the record books by the both parties, seller or the buyer; they are initiated purely to have bulk sales. The trade discount can be given on both the credit and the cash payments. Mostly the trade discount directly depends on the volume of purchase; as the purchase increase, the discount offered gets higher. The trade discount can also vary from vendor to vendor or due to the type and quantity of the product purchased. There is various type of trade discounts given to the buyer; some of the prominent trade discounts are on the purchase of bulk items, repeatedly purchase by the buyer, purchase of the goods in the bulk and the year-end discounts.

What is Cash Discount?

A cash discount is the concession, incentive or deduction in the invoice of products at the time of payment of the purchases. The actual reason for the cash discount is to ensure the payment of product by the buyer within the specified time with avoiding the credit risk. Such discount is kept on record by both the seller and the buyers. Cash discounts are the rewards offered by the sellers to the buyers as the make early payments with avoiding the credit risks. The terms and conditions for this type of discounts are pre-prepared and are set as the contractual agreement between both the parties. The other major reason far proving these accounts is the cash payment of invoice instead of the payment through checks or the credit cards. The standard payment period is kept in between the 15-30 days by the seller, and those make early cash payment early then this time are offered the discounts.

Trade Discount vs. Cash Discount

  • A trade discount is the concession, incentive or the deduction given by the seller to the buyer at the time of the purchase of the products. On the other hand, a cash discount is the concession, incentive or deduction in the invoice of products at the time of payment of the purchases.
  • The main objective behind this type of discount is to engage the buyer to a greater extent and let him buy more and more products. Contrary to this, the actual reason for the cash discount is to ensure the payment of product by the buyer within the specified time with avoiding the credit risk.
  • No records of trade discounts are kept in the record books by the both parties, seller or the buyer, whereas Cash discount are kept on record by both the seller and the buyers.

Comparison Video

YouTube video