Definition

Noun: A reduction in price from the standard list price offered by a manufacturer or wholesaler to a retailer or another business within the distribution channel, based on the volume of goods purchased or the buyer's status as a trade customer.

Usage

A trade discount is not typically recorded as a separate expense in accounting. Instead, the purchase is recorded at the net price (the list price minus the trade discount). It is a common business-to-business (B2B) practice to incentivize bulk purchases and maintain distribution relationships.

Examples

• The furniture manufacturer offers a trade discount of 25% to all authorized retailers.
• To qualify for the trade discount, you must provide proof of your business license.
• The invoice shows the list price, then applies the trade discount to calculate the final amount payable.

Advanced Usage

• Distinction from Cash Discount: A trade discount is deducted from the list price an invoice is issued, based on the buyer's category. A cash discount (e.g., 2/10, net 30) is offered for prompt payment the invoice is issued.
• Tiered Discounts: Trade discounts may be structured in tiers, where the discount percentage increases with the quantity ordered.
  • Example: "The supplier's price list includes a tiered trade discount: 10% for orders over 100 units, 15% for orders over 500 units."

Variants and Related Words

• Functional Discount: A synonym often used interchangeably with trade discount, sometimes emphasizing the discount is for performing a specific function in the channel (e.g., warehousing, promotion).
• Quantity Discount: A related concept focused specifically on the volume of purchase, which can be a form of trade discount.
• List Price: The published or standard price from which a trade discount is deducted.

Synonyms

• Commercial discount
• Functional discount
• Wholesale discount

Antonyms

• Retail price
• List price (before discount)
• Surcharge

Noun

1. a discount from the list price of a commodity allowed by a manufacturer or wholesaler to a merchant