A discount is a price reduction on the purchase price if a very short payment deadline is met or if payment is made immediately (usually in cash). An example is a 2% discount for payment within 14 days. If the payment period is longer, the buyer waives the discount.
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A discount is a price reduction offered by a supplier or seller as an incentive for the buyer to pay an invoice within a certain, usually short, period of time. This period is often 10, 14 or 30 days from the invoice date. The aim of the discount is to improve the customer's payment behavior and increase the supplier's liquidity.
Calculating a cash discount is a relatively simple process and can be summarized in the following steps:
Find cash discount rate: The cash discount rate is usually stated as a percentage on the invoice. For example, a supplier might offer a 2% discount rate for payment within 10 days.
Calculating the discount amount: The discount amount is calculated by multiplying the discount rate by the net invoice amount (excluding VAT).
For example, if the net invoice amount is 1000 euros and the cash discount rate is 2%, the cash discount amount is 20 euros.
Calculation of the amount after discount: The amount after discount is the amount the buyer must pay if he pays within the discount period.
In the example above, the amount after discount would be 980 euros.
It is important to note that the cash discount is a voluntary offer that the seller can, but does not have to, make. Similarly, the buyer is not obliged to make the payment within the discount period, but the entitlement to the discount expires if the payment is made after the specified deadline.
In some business sectors, the cash discount can be a key factor in managing cash flows and optimizing liquidity. It incentivizes prompt payment and can therefore help to strengthen a company's financial stability.