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CSEET · Business Communication · Common Business Terminologies

A company gives a retailer a reduction of 2% on the invoice price if payment is made within 10 days of the invoice date. In business terminology, this reduction is called a:

The reduction is a cash discount, because it is allowed for paying the invoice promptly, within 10 days. A trade discount is instead deducted from the list price at the time of sale and does not depend on how quickly the buyer pays.

  1. ACash discountCorrect
  2. BTrade discount
  3. CRebate on returns
  4. DCommission

Explanation

A reduction allowed for prompt payment within a stated period is a cash discount. A trade discount, by contrast, is given on the list price at the time of sale, irrespective of when payment is made, and is usually offered to traders for bulk buying.

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