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Chapter 4

Discounts

2.1 Types of discount

A discount is a reduction in the amount paid for goods and services. There are two
types of discount you need to be aware of, trade discount and settlement (cash)
discount.

 Trade discount – Trade discounts are offered by a seller to its customers in an
attempt to increase the volume of sales made. For example if a customer
purchased over 1,000 items the seller may reduce the unit price of those items
by 5%.

 Settlement (cash) discount – This type of discount encourages credit
customers to pay amounts outstanding quicker than they have previously
agreed. For example a seller may have agreed with a customer that they that
can pay for goods thirty days after their delivery date but the seller may also
offer the customer an early settlement discount of 5% if payment is made within
7 days of delivery.

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