Legal Definitions - trade discount

A trade discount is a reduction in the list price of goods or services that a seller offers to a buyer, typically another business, within the same trade or industry. This discount is often provided to allow the buyer, especially a reseller, to make a profit when they sell the item to their own customers, or it might be offered for bulk purchases by commercial clients. Unlike a cash discount for early payment, a trade discount is usually applied directly to the invoice, reducing the net amount owed from the outset.

Here are a few examples to illustrate how a trade discount works:

• Imagine a large electronics manufacturer that produces televisions. The manufacturer's suggested retail price (MSRP) for a specific 60-inch TV might be $1,500. However, when a major electronics retail chain purchases these TVs in bulk to sell in their stores, the manufacturer offers them a 25% trade discount. This means the retail chain pays only $1,125 per TV. This discount allows the retail chain to sell the TV to consumers at or below the MSRP and still earn a profit margin.

  This example demonstrates a trade discount given by a manufacturer to a retailer, enabling the retailer to resell the product profitably.

• Consider a commercial kitchen supply company that sells industrial ovens, refrigerators, and dishwashers. A new restaurant opening in the city needs to equip its entire kitchen. When the restaurant owner places a substantial order for multiple pieces of equipment from the supply company, the company provides a 10% trade discount on the total purchase price. This discount acknowledges that the restaurant is a business customer making a significant commercial investment within the food service industry.

  This illustrates a trade discount offered to a business customer making a large, industry-specific purchase for commercial use.

• A company that develops specialized accounting software has a partner program for accounting firms. These firms often recommend and implement the software for their own clients. When an accounting firm purchases multiple licenses of the software to install for their clients, the software developer grants them a 20% trade discount off the standard license fee. This allows the accounting firm to bundle the software with their consulting services and offer a competitive price to their clients while still covering their costs and earning a service fee.

  This example shows a trade discount provided to a business partner (an accounting firm) that resells or integrates the software into its own service offerings.