---
title: "What Is a Trade Discount?"
url: https://www.uncap.com/glossary/trade-discount
author: "Denis Dyli"
published: 2026-10-28
updated: 2026-10-28
summary: "A trade discount is a reduction from a list or catalog price that a seller gives a business buyer, such as a reseller, as part of the price it charges. The IRS describes trade discounts as the differences between the stated prices of articles and the actual prices paid, and the buyer records only the net amount."
---

# What Is a Trade Discount?

> A trade discount is a reduction from a list or catalog price that a seller gives a business buyer, such as a reseller, as part of the price it charges. The IRS describes trade discounts as the differences between the stated prices of articles and the actual prices paid, and the buyer records only the net amount.

**Trade discount**: A trade discount is a reduction from a list or catalog price that a seller gives a business buyer, such as a reseller, as part of the price it charges. The IRS describes trade discounts as the differences between the stated prices of articles and the actual prices paid, and the buyer records only the net amount.

## How it works

A trade discount is a reduction from the list or catalog price that a seller takes off what it charges a business buyer, so the buyer pays the [net price](/glossary/net-price).

IRS Publication 334 calls the differences between the stated prices of articles and the actual prices you pay for them trade discounts. It says trade discounts are usually not written into the invoice or charged to the customer. The buyer does not enter these discounts on its books and uses only the net amount as the cost of the merchandise purchased: the prices paid, not the stated prices, go into the cost of purchases.

The arithmetic:

- Trade discount amount: list price x discount rate
- Net price: list price - trade discount amount, or list price x (1 - discount rate)
- Two discounts in a row: each comes off the price left by the one before: list price x (1 - first rate) x (1 - second rate)

## Trade discount vs. cash discount

- Trade discount: a reduction from list or catalog price, built into the price the buyer pays. The buyer records only the net amount.
- Cash discount: an amount the supplier lets the buyer deduct from the invoice for prompt payment, such as the 2% in 2/10 net 30 terms. The IRS lists two ways for the buyer to account for cash discounts: credit them to a separate discount account, or deduct them from total purchases for the year. Whichever method you use, you must be consistent.

This is general information, not tax or accounting advice.

## Example

A distributor lists a pump at $200.00.

- Single trade discount: a contractor account gets 25% off list. The discount is $200.00 x 0.25 = $50.00, so the net price is $150.00.
- Two discounts in a row: a dealer gets 20% off list, then 10% more for a stocking order: $200.00 x 0.80 x 0.90 = $144.00. That is $56.00 off, a 28% total discount, not 30%.
- Cash discount on top: the contractor orders 10 pumps on 2/10 net 30 terms: 10 x $150.00 = $1,500.00. Paying within 10 days takes 2% off: $1,500.00 x 0.98 = $1,470.00.

## On Shopify

Shopify B2B runs on the Basic, Grow, Advanced and Shopify Plus plans, and catalogs let B2B customers purchase the included products at the prices you set.

- Percentage adjustments: a catalog can decrease the product price by a percentage you enter.
- Fixed prices: set prices for specific products. Fixed prices override any overall adjustment.
- Volume pricing: add up to 10 quantity breaks.
- Compare At: a catalog's Compare At field can display the product's original base price or MSRP next to the buyer's price.

## How Uncap helps

Uncap's guide to [how ERPs decide what a B2B buyer pays](/post/matrix-contract-pricing-how-erps-decide-b2b-price) explains matrix pricing: a grid with a customer dimension on one axis and a product dimension on the other, with each cell holding a price, a discount off list, or a markup on cost. A price matrix lets a distributor price 40,000 items for 800 accounts without writing 32 million individual prices, which is why nearly every wholesale ERP has one.

## Related terms

- List price
- MSRP
- Wholesale price
- Tiered pricing
- Robinson-Patman Act

## Sources

- IRS Publication 334: Tax Guide for Small Business
- Shopify Help Center: Customizing B2B pricing using catalogs

## Frequently asked questions

### What is a trade discount?

A trade discount is a reduction from a list or catalog price that a seller gives a business buyer. The IRS calls the difference between the stated price and the price actually paid a trade discount, and tells the buyer to record only the net amount as the cost of the merchandise.

### What is the difference between a cash discount and a trade discount?

A trade discount comes off the list price and is built into the price the buyer pays. A cash discount is an amount the supplier lets the buyer deduct from the invoice for prompt payment, such as 2% off for paying within 10 days.

### How do I calculate trade discount?

Multiply the list price by the discount rate to get the discount, then subtract it from the list price. A $200.00 list price with a 25% trade discount is $200.00 x 0.25 = $50.00 off, for a net price of $150.00.

### Can you give me an example of a trade discount?

A distributor lists a pump at $200.00 and gives a dealer 20% off list, then 10% more for a stocking order. The dealer pays $200.00 x 0.80 x 0.90 = $144.00, a 28% total trade discount.