Posted in Marketing and Strategy Terms, Total Reads: 556
Definition: Sales Allowance
Sales allowance is a reduction in the price of a product or service charged by a seller, due to a problem with the product/service. The problem could be related to quality issues, delayed delivery, an incorrect price etc. The sales allowance is created before the buyer pays to the seller, but after the billing to the buyer. Sales allowance isn’t offered because the business wishes to increase sales, but because there are defects in the product.
Sales allowance unlike sales return doesn’t involve the return of defective or damaged products to the seller. However, in this case buyer agrees to keep defective merchandise in return for a reduction in the selling price.
A separate account is managed to record sales allowances, so that the total amount of allowances given can be tracked easily. A large balance in this account shows that the business has substantial problems with its products.
For example: T-shirt with minor defects like logo printed on the wrong side, thread mismatch etc. sold at a lower price.