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Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked.
Trade discounts are most frequent in industries where retailers hold the majority of the power in the distribution channel (referred to as channel captains).
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Discounts and allowances are reductions to a basic price of goods or services.
They can occur anywhere in the distribution channel, modifying either the manufacturer's list price (determined by the manufacturer and often printed on the package), the retail price (set by the retailer and often attached to the product with a sticker), or the list price (which is quoted to a potential buyer, usually in written form).
There are many purposes for discounting, including to increase short-term sales, to move out-of-date stock, to reward valuable customers, to encourage distribution channel members to perform a function, or to otherwise reward behaviors that benefit the discount issuer.
Cash Discounts are reductions in price given to the debtor to motivate the debtor to make payment within specified time.
These discounts are intended to speed payment and thereby provide cash flow to the firm. Some retailers (particularly small retailers with low margins) offer discounts to customers paying with cash, to avoid paying fees on credit card transactions.