Cash Discount

A settlement discount is given for paying quickly. The faster payments are made the less money is in the bank or the larger the overdraft. This will reduce interest earned or increase interest paid on borrowings.

Companies have to make a financial decision about whether the money saved on the discount is greater or less than the interest effect.

A trading discount is simply a negotiated purchase price, lower than the normal list price. For example, a discount might be available if orders are for at least 1,000 units at a time.