What is the difference between Trade Discount and Cash Discount?

Trade discount and cash discount are terms you do not usually hear but are done, especially if you are doing business. The seller generally offers a trade discount to its customer before making the final purchase. The total amount is computed, and the seller will give a discount (ex. 10% off from the total amount) to encourage the buyer to make it a deal.

This kind of discount helps sellers and wholesalers to obtain a loyal customer and make more purchases (at that moment or in the future). Cash discount, on the other hand, is given to the buyer to encourage them to pay in cash as soon as possible. This is usually recorded in the seller’s accounting books as discount allowed and discount received must be filed by the buyer.

In accounting and the retail business, there are several ways to get discounts. Many people want discounts whether they are the owners of the company or they are a customer buying goods from the company. Either way, both want to save money on what they are purchasing. Two terms help with discounts.

They are a trade discount and a cash discount. One applies to improve the company saves money, whereas the other helps the customer save money. The trade discount is when the discount is made on the product going from the wholesaler to the retailer. The cash discount would be the markdown displayed on the price tag. Then the customer would be the one who received that discount.