Trade discounts occur when a purchaser buys in bulk, and it is a reduction in cost from the normal retail price on goods. Cash discounts, on the other hand, are generally a reduction in cost if the buyer pays during an agreed upon time. Cash discounts involves payment. Trade discounts involve goods.
With that being said, one advantage of a trade discount is that it will drive up a company's sales volume. When a company sells items in bulk, they may make less profit on each item, but the sales volume will make up for that. Firms offer bulk discounts in order to sell more goods. This can also increase purchase loyalty on the part of the buyer. For example, if the buyer knows that they will receive a 10% discount on the items if they purchase twenty items rather than five, they will be more inclined to buy in bulk.
A second reason firms give trade discounts is to rid themselves of older items that may be sitting on their shelves or in their warehouses. These are typically excess items that have been in their inventory for too long. The longer the goods sit, the more they cost the company. A trade discount is a good tool to move these items. By getting rid of excess stock, inventory can be controlled and managed.