Discount lost definition

What is a Discount Lost?

A discount lost is an opportunity to take a deduction on a payment to a supplier that has offered a reduced payment in exchange for paying early. A discount lost usually occurs when the buyer either does not have sufficient funds to make an early payment, or because a processing error failed to reveal the existence of the discount offer. Discounts lost tend to represent a relatively high effective interest rate , and so are to be avoided as much as possible.

Discount Lost Best Practices

There are several best practices associated with discounts lost. They are as follows:

Determine cost-effectiveness . Someone should calculate the effective interest rate on all discount offers, to see if they make sense for the company to take advantage of.
Implement reporting . All discounts lost should be reported to the company controller, along with their effective interest rates. This can result in actions taken to ensure that the most cost-effective discounts are taken in the future.