Monday, 13 Mar 2023
Discounts are a common practice during the holiday season, Black Friday and Cyber Monday sales in Melbourne. The reduction in prices is a captivating proposition for customers because they get the same product at a lower price.
So, they tend to buy more, and it works in favour of the sellers. Offering discounts is a technique used by businesses to boost sales and acquire new customers. However, understanding the incomings and outgoings can become confusing for the entrepreneur because of the change in prices.
Therefore, bookkeepers need to add the discount percentage on the invoice to maintain the accuracy of the financial records. So, here is everything you need to know about discounts, how they are applied to invoices and why are they important. It will help you to keep your books error-free and ensure that you are sending out correct invoices to customers.
A reduction in the cost price offered by the seller to entice customers is a discount. It can either be a percentage discount or an exact amount. For example, a 10% discount on the retail price or $50 off on the purchase of two products. The seller can offer discounts to customers if they pay before the due date, which is known as a cash discount or early payment discount.
Many expert bookkeepers Melbourne use this as an incentive to make customers pay quickly. For example, a 10% discount on payment within a week and a 7% discount on payment within ten days. It helps to bring more capital into the business and keeps incomings higher than outgoings.
Some other reasons for offering discounts are stock clearance sales, seasonal discounts, referral discounts and offering a reduced price for delivering a damaged product. These are known as trade discounts.
The details of the cash discount must be mentioned in the ‘terms and conditions’ of the invoice by the bookkeeping company. It is applied on the invoice in the following format: Discount percentage (if paid within a set number of days), Net (usual number of days for payment).
For example, 10/15, Net 30, which implies that the customer can avail 10% discount if he pays within 15 days or has to pay the full amount in 30 days. If the customer pays the discounted price by making an early payment, the cash discount is recorded as an expense by the bookkeeper.
Also, they need to provide tax invoices to GST-registered customers in Melbourne. When the seller provides a discount to the buyer, they must make decreasing adjustments to reduce the net GST liability. The adjustment gets included in the activity statement for the tax season in which the adjustment was used.
Trade discounts need to be mentioned on the invoice, which can either be one of the products or on the total purchase bill. Most bookkeepers in Melbourne use accounting software for automated invoicing. It improves efficiency by reducing the time spent on the task and ensuring accuracy. They have invoice templates that can be customised to add cash and trade discounts.
The template has a discount column where the bookkeeper adds the amount or percentage and saves the format to be applied to all the invoices for the given period.
Discounts reduce the cost price of the products and the amount coming into the business, yet they are considered significant and offered frequently. They are required by businesses to find new customers who are looking for cheaper alternatives and ensure the existing customers do not move away.
Rebates are influential in converting potential buyers because of the incentives offered by the business. It helps to increase sales because more people are interested in buying a product at a lower price. It makes them come back for repeat orders and buy more, which eventually helps the business in Melbourne to recover the loss incurred due to discounts.
It is essential to understand the expense of offering rebates to customers, as it should not lead to significant losses. Professional bookkeeping practices help to find a balance between incentivising and maintaining profits that can create a positive cash flow. It is essential to look at the competitor’s pricing to offer a better rebate to the customers and get higher sales.
The discount should be included in the quarterly budget of the business to understand the profit and loss statistics. Although cash discounts are beneficial for both the buyer and the seller, they may create a problem when the buyer does not pay on time.
In such situations, the Melbourne bookkeeping company is responsible for following up with the customer. They need to send reminders to ensure the payment is made on time and offer different payment modes to the customer to make the transaction easier.
Discounts are one of the best sales promotion techniques used by entrepreneurs to lure target buyers. However, they need to take the financial consequences of this action into account and make sure that they are added to the invoices correctly.
