Why is discount given

It may also apply to discounted purchases of specific goods that the seller is trying to eliminate from stock, perhaps to make way for new models. A discount received is the reverse situation, where the buyer of goods or services is granted a discount by the seller. The examples just noted for a discount allowed also apply to a discount received.

When the seller allows a discount, this is recorded as a reduction of revenues , and is typically a debit to a contra revenue account. Thus, the net effect of the transaction is to reduce the amount of gross sales. When the buyer receives a discount, this is recorded as a reduction in the expense or asset associated with the purchase, or in a separate account that tracks discounts.

This can be useful for sales which are relatively impulsive and where customers do not really need to make the purchase. It can also be useful when you have a sales target and need to get the sale completed in the short term. Sometimes it is more advantageous if you are paid in cash.

For such purchases, you may offer a discount. For example, if a customer uses a credit card, you may well have to pay the credit card company. You may hence negotiate with the customer to pay in cash, offering them a discount for doing this. A cash purchase also gives you the money immediately, which you can use for short-term purchase, rather than having to wait for an invoice to be paid or to receive the money from the credit card company.

You can offer a discount as a temptation to place the order in the shorter-term rather than let it delay. This can allow you to get orders that help you achieve sales target or bonus levels.

It is also useful of course to capture orders that may delay over a longer term and perhaps never be placed. To ensure customers pay invoices sooner rather than later, you may offer a discount for prompt payment. A typical term in which a discount can be received is if the invoice is paid within 30 day which is effectively one month. Many companies use this in business-to-business deals where the customer may try to delay payment for as long as possible in order to help their own cash flow situation.

Sometimes a short-term promotion of some sort may be offered with the discount being made up-front. For example, when a competitor product is being launched or they are having some other kind of promotion, you may offer a discount deal in order to tempt customers away from the competitive offer. At certain times of the year, sales are common in retail outlets. This includes 'Black Friday', New Year sales, end-of-season sales and so on.

In some sectors or stores sales are an almost permanent feature of how business is done and the 'recommended retail price' is never or hardly ever that which is charged. Quotes Guest articles Analysis Books Help. More Kindle book s: And the big paperback book. Look inside.

A business that offers discounts to certain groups of people — such as the elderly or those enlisted in the military — may improve its reputation. When a business gives discounts to people who are in difficult situations or who may have financial troubles from a lack of income, that business shows it is making an effort to help people. Many people regard businesses as money-hungry, so any deviation from that perception can improve reputation.

Many businesses have weekly, monthly, quarterly or yearly sales goals. If a business is in danger of missing those goals, offering discounts can help the business meet and surpass planned sales figures.

In addition to more sales, discounts may help your business save money if the discount involves payment methods.

Credit and debit cards result in additional fees to process, meaning that you lose money in comparison to cash transactions. By offering a small discount to customers who pay with cash instead of credit or debit, you help both the customer and your business.