Legal Definitions - trade discount

A trade discount is a reduction in the price of goods or services offered to a specific group of customers, such as wholesalers or contractors. It is a common practice in business-to-business transactions and is usually based on the volume of purchases made by the customer.

For example, a lumber dealer may offer a trade discount of 10% to building contractors who purchase a certain amount of lumber in a single transaction. This discount is not available to individual customers or retail buyers.

Another example is a functional discount, which is given to a purchaser based on their role in the supplier's distributive system. For instance, a supplier may offer a functional discount to a purchaser who provides warehousing or advertising services for their products.

Trade discounts are different from cash discounts, which are offered to customers who pay their bills promptly or in cash. While a trade discount is applied to the list price of goods or services, a cash discount is a reduction in the invoice amount.