Wholesale customer margins: discounts, freight, rebates, and payment terms

Choose the period, entity, products, and cost basis used in the review. Identify sales, discounts, rebates, returns, freight, and other costs associated with serving the customer.

Keep reported accounting figures separate from additional management allocations. A customer margin that includes allocated warehouse overhead answers a different question from contribution after direct costs.

Compare invoices, credit notes, returned goods, and contractual rebates. Confirm whether discounts apply immediately or depend on a volume target or later settlement.

For illustration, $100,000 of invoiced sales less $5,000 of approved credits and a $3,000 earned rebate produces $92,000 before other adjustments in the simplified case. The approved terms and accounting policy determine when the rebate is recorded.

Tie product costs to the approved inventory record and identify freight paid by the company. Review unusual rush shipments, small orders, damaged returns, and other customer-specific costs.

Avoid comparing one customer using purchase cost and another using landed cost. A consistent basis is necessary to tell whether the difference reflects pricing or accounting.

Review payment terms, actual collection timing, outstanding balances, and bad-debt concerns. A profitable customer can still require substantial working capital when invoices are slow to collect.

Model the cash effect of a new order before assuming additional volume solves the issue. Stock may need to be bought before the customer pays for the previous order.

Discuss pricing, order minimums, freight terms, rebates, credit limits, or collections with the commercial owner. Verify contract requirements and approval authority before changing the arrangement.

Retain the calculation, source records, assumptions, and decision. Compare later results against the same basis. A useful margin review identifies the specific term or operating cost management can change, with allocation limits and cash exposure still visible.