Discount
What is it
A reduction in the total price offered to the client. It can be a percentage or a fixed amount. It rewards early payment or volume purchases.
When is it required
When a promotional offer or agreement exists. It is optional but serves as a powerful negotiation tool.
Types of discounts
| Type | Description | Timing |
|---|---|---|
| Trade Discount | Reduction from the list price for specific customers (e.g. wholesalers). | Applied before invoicing. (Net price = Invoice price). |
| Cash Discount | "2/10 Net 30" - 2% off if paid in 10 days. Incentive for speed. | Applied at payment. Invoice shows full amount initially. |
| Volume Discount | Price drop based on quantity ordered. | Applied at line-item level. |
VAT treatment
General Rule: VAT is charged on the discounted (net) price, not the
original price.
Exception: For Cash Discounts (Prompt Payment), some regions (like the UK) require you to issue
a Credit Note if the customer takes the discount, or allow calculation on the discounted amount upfront
if carefully worded.
Common pitfalls
- Applying the discount after tax instead of before. This incorrectly reduces the tax payable to the government.
- Failing to specify the reason for the discount. This sets a precedent for future lower prices.
- Offer expires but the discount is still applied. This results in revenue leakage.
Common mistakes when filling the field
- Calculating percentages incorrectly on the gross amount. The math must always be double checked.
- Hiding the original price. The client wants to see the savings explicitly.
- Stacking multiple discounts that result in a loss. Margins must be protected.
Why is it there
It incentivizes behavior such as quick payment. It strengthens the relationship by offering value. It helps clear old stock.