Terms of Cash Payment
Cash payment can normally be deferred for up to two weeks. When the seller doesn’t want to defer payment, methods include:
- Cash with order (CWO): payment demanded with the order.
- Cash on delivery (COD): payment made before the buyer takes possession of the goods.
- Spot cash: the full price is paid before collecting the goods.
- Prompt cash: the buyer is given a number of days to examine goods before paying.
- Net cash: the buyer is given a set number of days (e.g. 10) to pay.
Types of Discount
A discount is a reduction on the sale of goods, based on quantity/quality purchased or on prompt cash payment.
- Trade discount: an allowance granted by the wholesaler for buying a certain quantity or quality of goods — given regardless of when payment is made, and not recorded in the ledger.
- Cash discount: given to encourage prompt, punctual payment, deducted only after the trade discount, and treated as an expense in the ledger. It can be lost if the buyer doesn’t pay within the agreed period.
Worked Example
A wholesaler allows 20% trade discount on 100 bags of rice costing 100,000frs, plus a further 5% cash discount if paid within a week.
100,000frs − 20% (20,000frs) = 80,000frs. Then 80,000frs − 5% (4,000frs) = 76,000frs — the actual amount the retailer pays.
