Question 1

How do I calculate a cash discount?

Accepted Answer

Discount = invoice amount × discount rate / 100. It is usually calculated on the gross amount, i.e. including VAT. For an invoice of €1,190 gross and a 2% discount this is €23.80. You then pay €1,166.20 instead of €1,190.

Question 2

Is the discount calculated on the net or the gross amount?

Accepted Answer

In practice on the gross amount, because the customer pays the gross amount. The result is equivalent, though: 2% of gross (€23.80) contains €20.00 net and €3.80 VAT. That is exactly 2% of net plus the tax on it. What counts is what the payment terms say.

Question 3

Do I have to correct VAT when a discount is taken?

Accepted Answer

Yes. A discount reduces the consideration and therefore the taxable amount. Under § 17 (1) UStG the seller corrects the output VAT owed and the buyer corrects the input VAT deduction. This is done for the VAT return period in which the discount was taken, i.e. with the payment. In the example the tax falls by €3.80.

Question 4

What interest rate does a 2% discount correspond to?

Accepted Answer

With “2% within 10 days, net 30 days” the supplier grants 20 days of credit and charges 2% for it. Converted, that is 2 / 98 × 360 / 20 × 100 = about 36.7% per year. The rule of thumb 2 × 360 / 20 gives 36%. With a 14-day discount period and a 30-day term it is already about 45.9%.

Question 5

Is it worth financing the discount with an overdraft?

Accepted Answer

Usually yes. As long as the overdraft rate is below the effective annual rate of the discount, you save money. Example: €1,166.20 for 20 days at 10% costs about €6.48 in interest, while the discount brings €23.80. The calculator shows this comparison for your figures.

Question 6

May I deduct the discount after the period has expired?

Accepted Answer

No, not without the supplier's consent. A cash discount is a contractually agreed reduction subject to a condition: payment within the period. If you pay later and still deduct it, the invoice is not fully settled. The remainder stays open and can be claimed.

Question 7

Does the discount have to be stated on the invoice?

Accepted Answer

Under § 14 (4) sentence 1 no. 7 UStG, any reduction of the consideration agreed in advance is a mandatory invoice detail unless it is already reflected in the price. A discount agreement should therefore be on the invoice, for example “2% discount for payment within 10 days”.

Question 8

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

Accepted Answer

A trade discount is granted immediately and already reduces the price on the invoice, e.g. a volume or loyalty discount. A cash discount is only granted afterwards and under one condition: fast payment. That is why the invoice first shows the full amount, and VAT is only corrected on payment.

Guide: Cash Discount Calculator

Calculating a Cash Discount (Skonto): The Complete Guide with Formulas and Examples

Cash Discount and VAT: How the Correction under § 17 UStG Works

Supplier Credit: The Annual Interest Rate Hidden in a Cash Discount

Booking a Cash Discount: Entries for Buyer and Seller with an Example

Discount Period and Payment Term: What Applies If You Miss the Deadline?

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