Cashback - a term often heard in the business world, but what exactly does it mean and why is it so important? This financial benefit that companies offer their customers plays a crucial role in the dynamics of payment flows and customer relationships. In this article, we will take a closer look at the terminology, mechanisms and benefits of Cashback to understand why it is an indispensable tool in the Financial Management of companies.

Cashback Meaning: What is Cashback?

Cashback is a financial incentive granted by vendors to their customers to encourage early payment of an invoice. It is a discount on the invoice amount that is granted if payment is made within a specified period that is shorter than the usual payment term. Cashback serves to improve the seller's liquidity by collecting money more quickly, and it also reduces the credit risk. This discount is expressed as a percentage of the invoice amount and is deducted directly from the invoice total.

What types of Cashback are there?

There are different types of Cashback used in the business world, depending on the agreement between the trading partners and the purpose of the Cashback. These different types of Cashback allow businesses to manage their cash flows efficiently, strengthen customer relationships and incentivize quick payments. The following table provides an overview of the common types of Cashback, their application in different business contexts and the strategic objectives that can be pursued with them.

Type of Cashback Description
Supplier Cashback A discount offered by the supplier for prompt payment of the invoice, usually within specified periods.
Customer Cashback A discount offered by a customer to its supplier for prompt payment in order to reduce costs.
Cash Cashback A discount for immediate or very fast cash payment on delivery or shortly thereafter.
Seasonal Cashback Cashbacks offered on a seasonal basis to encourage sales at certain times or to clear stock.
Staggered Cashback Cashbacks where the discount rate varies depending on when payment is made within the specified periods.

Advantages: Why should Cashback be deducted?

Cashback offers numerous advantages for both sellers and buyers. Here are some of the most important:

  1. Improved liquidity for the seller: By encouraging quick payments, businesses can improve their liquidity. This is especially important for small and medium-sized businesses that rely on a steady cash flow to keep their operations running.
  2. Savings for the buyer: Buyers who take advantage of Cashback can produce significant savings. Even a small percentage, such as 2% or 3%, can contribute significantly to overall savings on large purchase amounts.
  3. Reduced credit risk: Cashback minimizes credit risk for the seller as invoices are paid faster. This reduces the likelihood of payment delays and defaults.
  4. More efficient accounting and less administrative work: Faster payments mean less work chasing outstanding invoices and less administrative work. This leads to cost savings and more efficient financial management.
  5. Strengthening business relationships: Cash discount offers can build and maintain positive business relationships. Buyers who benefit from Cashbacks are often more willing to enter into long-term relationships with sellers who offer such benefits.
  6. Incentivize on-time payments: Cashback motivates buyers to pay their invoices early, which in turn helps make the seller's cash flow more predictable and facilitates financial plans.

Overall, Cashback creates a win-win situation for both parties by providing financial incentives for prompt payments that contribute to overall financial health and stability.

Important terms relating
to Cashback

Important Cashback terms

Term Definition
Cashback A price reduction granted for the prompt payment of an invoice within a certain period.
Payment term The period during which payment of an invoice can be made without financial penalty.
Discount period The specific period within which the customer must pay in order to receive the discount.
Cashback rate The percentage of the invoice amount that is granted as a Cashback.
Invoice amount The total amount shown on the invoice before Cashback is deducted.
Cashback amount The amount deducted as a Cashback, calculated as a percentage of the invoice amount.
Net payment The amount that is actually paid after deduction of the Cashback.
Payment terms The conditions under which payments are accepted, including the discount period and the discount rate.

This table provides an overview of the key terms that are relevant in connection with Cashback and explains their meanings.

Calculate Cashback: Formula

To calculate Cashback, you can use the following formula:


  • Invoice Amount: The total amount of the invoice, including VAT, unless otherwise specified.
  • Cashback Rate: The percentage of the Cashback granted for early payment.

For example, if you have an invoice for 1000 euros and the discount rate is 2%, the discount amount is calculated as follows:

Accordingly, the amount to be paid after deduction of the Cashback would be 980 euros.

What else do I need to consider when calculating the Cashback?

When calculating Cashback, there are some important aspects that you should consider ensuring that the process runs correctly and efficiently:

  • Correct discount period: Make sure that the payment is made within the agreed discount period. Payments received after this period no longer entitle you to a discount.
  • Exact percentages: Check the discount rate applicable to the invoice. Errors in applying the wrong percentage rate can lead to financial discrepancies between you and your business partner.
  • Gross amount: Make sure that the Cashback is deducted from the gross amount of the invoice, including all taxes, unless explicitly agreed otherwise.
  • Accounting guidelines: Follow your company's accounting policies and general accounting standards. Correct accounting for Cashback is important for the accuracy of financial reports.
  • Sales tax adjustments: If you grant Cashback as a seller, you may need to adjust the sales tax according to the reduced invoice amount. This must be correctly reflected in your accounting records.
  • Documentation: Keep accurate documentation of all transactions involving Cashback. This helps to clarify possible discrepancies with customers or suppliers and serves as proof in the event of tax or legal issues.
  • Communication with customers or suppliers: Clarify all terms related to Cashback clearly with your business partners to avoid misunderstandings.
  • Software support: Use accounting software that automates and integrates the calculation of Cashback to minimize human error and make the process more efficient.

By taking these points into account, you can ensure that the cash discount calculation is carried out correctly and that your financial accounting remains accurate.

For which services can Cashback be agreed?

Cashback can be agreed for a variety of services and products, depending on the terms and conditions between the trading partners.

Overview of the Services and Products for which Cashback is posted

The following diagram shows the services and products for which Cashback is frequently posted and deducted.

Explanation: The services and products for which Cashback is booked

The broad applicability of Cashback makes it a valuable tool for companies in a wide range of industries to control their cash flow and manage payment terms effectively. Here is a more detailed explanation of the services and products for which Cashback is booked.

Agriculture and Food Production

Cashback is also common in agriculture and food processing, especially to ensure fast processing in seasonal markets.

Software and Technology

Cashback can be used for the delivery of software solutions or technological products, especially when extensive licenses or maintenance contracts are involved.

Freelance Services

Freelancers such as designers, architects or lawyers can also offer Cashback to ensure prompt payment for their projects or consultancy services.

What is the Difference between Cashback, Bonus and Discount?

Cashback, Bonus and Discount are all price reductions, but differ in their application and purpose. This table helps to understand the different forms of discounts and the context in which they are typically applied.

Term Definition Purpose Time of granting
Cashback A discount on the invoice amount for prompt payment. Accelerates the receipt of payments, improves liquidity. Granted for payment within a certain period after invoicing.
Discount A discount on the list price of a product or service. Promotes sales, responds to competition, rewards customer loyalty. Mostly granted on purchase and shown on the invoice.
Bonus A compensation or benefit as a reward for achieving goals or long-term loyalty. Reward for achieving specific goals or continued business relationships. Often given at the end of an evaluation period or after certain criteria have been met.

In summary, Cashback aims to accelerate incoming payments, while discounts primarily reduce the sales price and bonuses often serve as an incentive for continued business relationships or the achievement of specific goals.


Is the Cashback deducted from the gross or net amount?

The Cashback is usually deducted from the gross amount of the invoice, i.e. including VAT. This means that the discount is applied to the total amount payable by the customer.

What is the difference between Cashback and Discount?

A key difference between Cashback and discount lies in the reason and timing of their granting. A discount is typically granted before the purchase as a price reduction and serves to promote sales or make certain products more attractive. Cashback, on the other hand, is offered after the purchase and aims to incentivize faster payment of the invoice. Discounts influence the price directly, while Cashback are more of a payment management tool.

What is the Cashback booking rate?

The posting record for Cashback depends on whether the Cashback is granted or taken. If a company grants a Cashback, it posts the discount amount as an expense. The entry is then: Liabilities for sales deductions and VAT. If a company takes a cashback, the cashback amount is posted as a reduction in expenses for the services purchased. The corresponding posting record is then: Accounts payable and input tax to bank or cash office. These postings adjust the original invoice total accordingly.

What is a standard Cashback?

A standard Cashback varies depending on the industry and the agreement between the business partners, but is often between 2% and 3% of the invoice amount. These discounts are usually granted if payment is made within a short period of time, such as 10 to 14 days after receipt of the invoice. These terms are intended to improve the seller's liquidity by encouraging the buyer to pay more quickly.

What is a Cashback loan?

A cashback credit is a term used to describe the situation where a company decides to take out a loan to pay its supplier invoices early and thus take advantage of a cashback. The basic idea is that the cost of the credit (i.e. the interest) is less than the financial benefit realized from the Cashback. This strategy can effectively reduce the overall cost of procuring goods and improve the company's liquidity.

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