What is an Off-Invoice Allowance?
An off-invoice allowance is an agreement between a seller and buyer that involves rebates or discounts that are deducted from the invoice price of a product or service. This type of discount is most commonly used in business-to-business (B2B) transactions, allowing the buyer to reduce their costs while the seller may retain some of the original selling price.
How Does an Off-Invoice Allowance Work?
The off-invoice allowance is negotiated between the buyer and seller and is typically expressed in terms of percentage or dollar value. The seller agrees to reduce the invoice price of the product or service and the buyer agrees to purchase the product or service at the reduced price. The seller then invoices the buyer for the discounted amount and the buyer pays the discounted invoice price.
Examples of Off-Invoice Allowance
The most common type of off-invoice allowance is a volume discount, which is offered when the buyer agrees to purchase a larger quantity of the product or service than originally agreed upon. This type of discount may also be extended to buyers who order on a regular basis. Other examples of off-invoice allowances include:
- Promotional allowance – a discount offered to buyers who agree to advertise or promote the product or service
- Geographical allowance – a discount offered based on the buyer’s location
- Payment terms allowance – a discount offered for early payment of the invoice
- Rebate – an amount returned to the buyer after a certain amount of the product or service has been purchased
Off-invoice allowances can be used to increase the sales of a product or service and promote customer loyalty. It is important to note, however, that these discounts must be offered in accordance with applicable laws and regulations.
Conclusion
Off-invoice allowances are a common type of rebate or discount used in business-to-business transactions. They can be used to increase sales, promote customer loyalty, and reduce the overall cost of a product or service. It is important to be aware of all applicable laws and regulations when offering off-invoice allowances.