Difference between Purchase Discount and Sales Discount

What is a sales discount? It is more likely that people will walk into a store if they knew that there was a discount on the products the store sold. A store that sells branded clothing is usually pretty empty until they put up a sign saying that they are offering up to 50% off on their clothes. But, of course, they are not doing this out of the generosity of their hearts; there is something in it for them too, as giving discounts is an integral marketing strategy for retailers and wholesalers.

The Accounting Difference between sales discount and Purchase Discount

Sales Discount
Sales Discount

Image Source: Telegraph

Sales Discount

There are different kinds of discounts that can be availed of, depending on who gives, and who receives them. The kind we are most familiar is the sales discount. This refers to a reduction in the price of an item or product that a customer buys from a retailer. Imagine walking into a Levis store and finding that the jeans that you wanted to buy were marked down by 30%. That would be a sales discount.

Sales discounts are offered for a variety of reasons. Retailers might want to move new products into their outlets, and thus, will reduce the prices of the old merchandise in order to get customers to buy it. If the season for a particular type of clothing is over (winter clothes, for example), then they are typically put on sale. Bigger brands might want to seem attractive to a wider market and could, therefore, offer big discounts in order to seem more affordable. Some retailers might just offer discounts because they themselves have received purchase discounts.

Purchase Discount
Purchase Discount

Image Source: MarketLive

Purchase Discounts:

Individual customers are not the only ones that get discounts. Purchase discounts are the reductions that retailers and stores get from their wholesalers. Products appear in stores from nowhere; they have to be purchased from somewhere. These supplier discounts are usually offered because the retailer buys products in bulk, or for early payment of an invoice. For example, for a sale worth 100 rupees, a supplier might let the retailer pay 20 rupees less if the retailer agrees to pay within 5 days. If the retailer pays at a later date, the purchase discount gets canceled.

The grander (marketing) scheme of things across Sales Discount and Purchase Discount

As mentioned earlier, the business of offering discounts is a sales and marketing scheme. Wholesalers want their goods to be bought in bulk, and to be paid early. Retailers mark down their products when they want to get rid of the old stock and replace them with new inventory. They wanted to attract more customers with their seemingly affordable prices. One of the most important reasons that discounts are offered is to generate consumer surplus.

Simply put, consumer surplus is the difference between what customers are willing to pay for goods or services, and what they do pay (i.e. the market price). Occasional customer surplus is a positive business strategy as it makes them think a great bargain.

Getting purchase discounts allows retailers to offer sales discounts and thus, keep their customers satisfied.

Look at the ways to increase sales revenue as well as decreasing costs to make business more profitable. One can use online invoicing tools to improve business productivity.

Choose a tool like Invoicera to automate your business process and manage clients more efficiently.   The invoicing platform consists of supported features from project/task management, purchase order, estimate management,  expense management, financial reports,  time tracking, Credit Notes,  staff management to Custom workflow management and more.

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Veronika Tondon is a business enthusiast with extensive experience in Invoicing & Payment Process. She has 6+ years of experience in Invoicera, the leading cloud-based invoicing solution as Invoicing Consultant. Sound knowledge in business process execution, offers end to end solutions for complete automation of business processes and AR/AP processes. Contact Veronica for your invoicing requirement.

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