What is Net of Discount?

There are two definitions of the net of discount term, which are noted below. The first definition of the term is more likely to apply to a consumer, while the latter situation is more likely to apply to a business transaction.

Net of Discount - Manufacturer’s Coupon

A manufacturer's coupon is typically applied to the price of a product only after all other discounts have been applied to it, or "net of discounts." For example, a coupon offers 20% off the $100 retail price of a product, net of discounts. Other applicable discounts are a 10% Christmas discount and a 5% volume discount. Thus, the other two discounts are applied first to arrive at an $85 price for the product, after which the 20% coupon offer is applied, resulting in a $17 discount related to the coupon. This approach reduces the value of the coupon, costing the manufacturer less money in lost sales.

Net of Discount - Supplier Invoice Deduction

On a supplier’s invoice, “net of discount” refers to the amount that a supplier indicates on its invoice as payable if an early payment discount or other type of discount is taken. For example, an invoice might contain a $500 total amount payable, which is reduced to $480 net of an early payment discount, if the customer pays within ten days of the invoice date. The terminology used by the supplier might be a percentage discount from the full amount of the invoice, or it may be the actual dollar amount payable if the discount is taken. This approach is usually taken by the supplier when it wants to accelerate customer payments, typically due to having low inbound cash flows that do not offset its outbound cash flows.