A trade discount is a special rate that is extended to clients, representing a discount off the standard published rates that would normally apply. There are several ways to go about receiving a discount of this type, with the more common methods having to do with participation in customer loyalty programs or possibly entering into some sort of contractual agreement with the vendor or provider.
One of the more common approaches to trading discounts is found with business arrangements between the manufacturer or supplier of a good or service and a reseller. In this scenario, the reseller makes a covenant to purchase a certain volume of products from the supplier over a specified period of time. In exchange for committing to purchasing products at that volume level, the supplier provides a trade discount on each of the purchased units of the good or service. This approach benefits both parties, since the supplier is able to sell products in larger quantities and be assured of a profit, while the reseller can obtain the products at a lower rate and have a better chance to resell them to customers at a competitive rate while still making money.
It is not unusual for a trade discount to be documented in the terms of some sort of contractual agreement. Sometimes referred to as a volume purchase agreement, the parties agree on pricing for the goods that are below the published prices that other buyers are normally extended. Typically, there is some negotiation on the amount of the discount, with the supplier requiring a minimum quantity purchased over the life of the contract in exchange for extending the lower rates. There is often a provision within the terms of the agreement that allows the supplier to receive some additional compensation if the buyer does not purchase that minimum amount of units over the life of the contract, a measure that further protects the interests of the seller.
Along with making some sort of contractual commitment in order to secure the trade discount, some suppliers will also extend this type of arrangement to customers who enter into special reward or loyalty programs. With these arrangements, the client may be eligible for periodic discounts on purchases based on the amount of purchases made within a given time frame. For example, the loyalty plan may call for offering a trade discount in the form of a percentage off the price of the next order placed by that client, when the last three purchases amount to over a certain amount.