Meaning
Financial deductions applied directly to a purchase invoice reduce the amount the buyer must pay the seller. An off-invoice credit is often used as a promotional incentive to encourage larger order volumes or to reward distributor loyalty. This reduction is calculated before taxes and shipping costs are applied.
Discount Structure
Direct price reductions are processed at the time of purchase, which simplifies the transaction and improves the buyer’s cash flow. Unlike rebate systems, which require the buyer to pay the full price and wait for a refund, this discount provides immediate financial relief. This mechanism makes the purchase more attractive to the distributor.
Accounting Method
Accurate tracking requires both parties to record the transaction carefully to ensure tax and margin accuracy. The supplier lists the deduction and the net payable amount. This method ensures that the discount is reflected in the cost of goods sold.
Promotion Agreement
Distribution agreements often outline the specific conditions under which these discounts apply. The contract might specify that the discount is only valid for purchases made during a specific promotional period or for orders that exceed a minimum volume. This clarity prevents misunderstandings regarding invoice discrepancies.
Furthermore, the agreement ensures that the off-invoice credit is not combined with other promotional allowances unless expressly permitted.
