Settlement Discount

 


 

 

Overview
 

Settlement discounts can be set up for both sales and purchases. The option Settlement Discount Maintenance is used to define the actual discounts allowed for the relevant number of days. Settlement discounts are grouped together into categories. Up to four bands of settlement discount can be defined for each category. The category code can then be applied to the Trading Account Customer and Supplier records as applicable. These become the default categories when entering orders and invoices but may be amended at transaction level.

If your system is set up to use European Tax and the system key CESPLITSD is set to YES, you can apply a settlement discount account to each VAT Code.

 
   
Settlement Discount for Purchases
 
   

Accounts Payable can handle discounts for the early payment of invoices. The amount of discount and the time over which it can be taken are specified when an invoice is entered through the Invoices option, or the Purchase Invoices option in Purchase Order Processing. Settlement discount is deducted automatically from an individual invoice if discount was entered in the Invoices option and payment is made on or before the last date on which discount is available.

When a payment is entered through the Cash option, it calculates whether the discount is still applicable by checking the discount date against the date of the cash batch. If the last date on which discount may be taken has passed, the amount can be still deducted from the invoice if allowed by the supplier. Conversely, the discount can be disregarded if the supplier has withdrawn the settlement discount terms, even though the last date may not have been reached yet.

If payment is made by remittance advice, discount is only taken if the payment is made within the period specified.

If invoices are settled by remittance advice and the supplier changes the settlement discount terms after the invoice has been posted to the Accounts Payable, the discount figure and date may be amended through the option Change Open Item Status. The Remittance Advice/Generate Payments from List options will automatically settle the invoice in accordance with the new terms.

Settlement discount is posted to the Open Item file as a closed item, identified by the invoice or cash number with the suffix /D.

Note: Only the first 8 characters can be entered for the cash item number, i.e. the '/D' will overwrite the last 2 characters if all 10 are used. It is therefore advisable to amend the field on the form to 8 characters to avoid incorrect numbering. This also applies to Accounts Receivable cash items.

If Accounts Payable is fully integrated with the General Ledger, the total discount for the batch is posted to the General Ledger posting code for settlement discount. This account must be defined using Control Account maintenance.

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement Discount for Sales

 

When a cash receipt is entered through the option Cash , the system calculates whether the discount is still applicable by checking the discount date against the date of the cash batch. If the last date on which discount may be deducted has passed, the discount can still be allowed. Conversely, the discount can be denied to the trading account customer even if the invoice has been settled within the time permitted. The discount is posted to the Open Item file as a closed item, identified by the invoice or cash number with the suffix /D. If the Accounts Receivable is fully integrated with the General Ledger, the total discount for the batch is posted to the General Ledger account for settlement discount. This account must be specified in Control Account Maintenance when Accounts Receivable is first installed.

When a sales invoice is paid, you can either allow only the strictest terms or you can decide to set all trading account customers a period of 'grace' where they may still take settlement discount, even if the terms have expired. The system key SLSETTLAT holds the number of latitude days allowed after the settlement terms have expired. This means that the trading account customer has more time to pay an invoice before losing any settlement discount. The number of latitude days will be taken into account when the system calculates any settlement discount that can be taken.

For example, you may have a category with settlement terms of 5% discount if paid within seven days, and you have set SLSETTLAT to 5, the trading acocunt customer will in fact have 12 days to pay the invoice in order to receive the 5% discount.

 

 

 

Settlement Discount Categories

 

Settlement discounts are held within categories. Each category holds up to four 'bands' of settlement discounts. These categories are set up and maintained within the General Supporting Files. A settlement discount category can be entered against each customer or supplier, if required, via the field Sett Disc. Cat.

Up to 4 bands of settlement discount can be entered for each category. The first band will represent the highest amount of settlement discount that can be taken and the fourth band will represent the lowest. Each consists of the percentage of settlement discount that can be taken if an invoice is paid within a certain number of days. You do not have to use all four bands.

For example, a particular category may consist of the following:

 

 

 

 

 

 

 

Band Percentage Days

 

1 25.00 10

 

2 15.00 15

 

3 10.00 20

 

4 5.00 25

 

     

 

Trading Account Customers

When entering transactions in Accounts Receivable, you can override the default category held against the customer.

Suppliers

You can override the default supplier settlement discount category when entering purchase invoices either in Purchase Order Processing or Accounts Payable.

 

 

 

 

Calculating VAT

 

If settlement discount is taken into account when calculating VAT on transactions, i.e. where either the system keys OPVATCALC or CESETTDISC are set to NO, the system will always use the highest settlement discount band on the category for the calculation.

 

 

 

Posting Settlement Discount

 

For both types of transactions, settlement discounts can be posted to one of two control accounts on the Control Accounts file:
  • Authorised Settlement Discount account
  • Unauthorised Settlement Discount account.

This allows separate postings of settlement discount to be shown, taken/received within both the defined settlement terms and outside the defined terms.

In the UK, when settlement discount is included in an invoice, it is permissible to charge VAT on the discounted amount on that invoice. However, in Germany, the VAT is charged on the full amount and it is only when the trading account customer pays within the settlement discount terms that the VAT element of the discount can be claimed back. This is known as VAT claw-back.

If your system is set up to use European Tax and you have either or both of the system keys OPCLAWVAT or POCLAWVAT set to YES, and the system key CESPLITSD set to YES, the VAT element of the settlement discount that is clawed back can be posted to a settlement discount account specific to the VAT code used.

 

 

 

Reports

 

All four settlement discount terms, if required, can be shown on the following printed documents: