Discounts
Receivables lets you give discounts to your customers when they pay for their debit items before a certain date. Discounts are determined by the payment terms you assign to your customers. You can also choose whether to allow discounts for partial payments and specify how you want Receivables to calculate the discount on your invoices.
Types of Discounts
Receivables lets you use the following types of discounts.
Earned and Unearned Discounts
Receivables lets you determine whether your customers can take earned and unearned discounts. An earned discount is a discount you give to a customer who pays on or before the discount date or within the discount grace period. For example, a customer may earn a 2% discount off the original invoice if payment is received within 10 days. The earned discount period is determined by the invoice date, apply date of the receipt, and any discount grace days.
Receivables also lets you choose whether to allow unearned discounts. Unearned discounts are discounts that you allow after the earned discount period has passed. The default discount taken is zero if the discount is unearned. If the discount is earned, the default discount taken is the amount of the earned discount. Receivables lets you override the discount taken amount during payment entry and warns you if you are taking an unearned discount. You specify whether your customers can take unearned discounts in the System Options window. See: Accounting System Options.
For more information, see: Determining the Discount Percent.
Discounts on Partial Payments
Receivables lets you choose whether to allow discounts when your customer remits partial payment for an open debit item. If you allow discounts on partial payments, Receivables prorates the amount of the discount based on the receipt amount. You can control whether your customers can receive discounts for partial payments by setting the system option Discount on Partial Payment to Yes or No. See: Accounting System Options.
Tiered Discounts
When you define your payment terms, you can assign multiple discounts to each payment schedule. You might want to assign different discount percents based on different discount dates. For example, you might give your customers a 15% discount if they pay within 10 days after the invoice date, but only a 5% discount if they pay within 15 days.
Discount Options
The following options let you determine how Receivables calculates the discount amount.
Discount Grace Days
Grace days refer to the number of days after the discount term that your customer can take earned discounts. Your customer must have discounts specified in their payment terms before discount grace days can be used. If you use an AutoCash Rule Set to apply payments to a customer's open debit items, Receivables uses the number of Discount Grace Days that you specify for this customer's profile to determine this customer's open balance. See: Defining Customer Profile Classes and AutoCash.
Discount Basis
The discount basis option lets you specify how Receivables calculates discounts for your invoices. You enter a discount basis when creating your Payment Terms. You can also enter a default discount basis for your payment terms in the System Options window. See: Accounting System Options.
You can choose one of the following options as your discount basis:
Invoice Amount: Calculate the discount amount based on the sum of the tax, freight charges, and line amounts of your invoices.
Lines Only: Calculate the discount amount based on only the line amounts of your invoices.
Lines, Freight Items and Tax: Calculate the discount amount based on the amount of line items, freight, and tax of your invoices, but not freight and charges at the invoice header level.
Lines and Tax, not Freight Items and Tax: Calculate the discount amount based on the line items and their tax amounts, but not the freight items and their tax lines, of your invoices.
Set Up Receivables to Calculate Discounts
- Define your payment terms in the Payment Terms window. Enter a discount percent, choose whether to allow discounts on partial payments, and select a discount basis.
- Choose whether to allow partial and unearned discounts in the System Options window.
- Define your earned and unearned discount accounts in the Bank Accounts window (More Receivables Options alternative region).
- Choose whether to allow discounts and assign discount grace days to your customers in the Customer Profile Classes window or the Profile:Transaction alternative region of the Customers window. The values you define in the Customers window take precedence over those in the Customer Profile Classes window.
Determining the Discount Percent
Earned Discounts
When determining the discount percent for earned discounts, Receivables uses the invoice date, discount grace days, and the apply date of the receipt to determine the discount percent for this payment term. For example, the invoice date is 01-DEC-93, the receipt is applied on 12-DEC-93, discount grace days = 5 and your payment term has the following discounts:
10% 10 days
7% 15 days
2% 20 days
Receivables uses 10% as your discount percent since the receipt was applied within 10 days (including grace days).
Unearned Discounts
When determining the discount percent for unearned discounts, Receivables uses the maximum discount allowed for this payment term. To allow unearned discounts, set Allow Unearned Discounts to Yes in the System Options window.
Formulas Used to Calculate Discounts
Maximum Discount
Use the following formula to determine the maximum discount amount:
Maximum
Discount
| =
| Amount Due
Original
| *
| Highest Discount
Percent
| -
| Discount
Taken
|
Earned Discounts and Partial Payments Allowed
If the receipt amount is more than the amount due remaining less the discount, Receivables uses the following formula to determine the earned discount:
| Earned Discount
| =
| Amount Due Remaining
| *
| Discount Percent
|
If the receipt amount is either the same or less than the amount due remaining less the discount, Receivables uses the following formula to determine the earned discount:
| Earned Discount
| =
| Receipt Amount * Discount Percent
1- Discount Percent
|
Unearned Discounts with Partial Payment Discounts Allowed
Receivables uses the following formula to determine unearned discounts if partial payments are allowed:
| Unearned Discount
| =
| Maximum
Discount
| -
| Earned Discount
Percent
| *
| Amount Due
Remaining
|
Earned Discounts with Partial Payment Discounts Not Allowed
If the Allow Discount on Partial Payments check box for your payment terms is checked, Receivables only takes discounts if the receipt amount closes the installment. Receivables uses the following formula to determine earned discounts if partial payment discounts are not allowed:
| Earned Discount
| =
| Amount Due Original
| *
| Discount Percent
|
Unearned Discounts and Partial Payments Not Allowed
If the Allow Discount on Partial Payments check box for your payment terms is not checked, Receivables only takes discounts if the receipt amount closes the installment. Receivables uses the following formula to determine unearned discounts if partial payments are not allowed:
| Unearned Discount
| =
| Amount Due
Original
| *
| Maximum
Discount Percent
| -
| Earned
Discount
|
Discount on Lines Only
If the Discount Basis option for your payment term is set to Lines Only, Receivables does not take discounts on receipt amounts applied to tax, freight, or finance charges and uses the following formula to determine the discount amount:
Line
Percent
|
=
|
Discount
Percent
|
*
| Sum of Lines + Sum of Line Adjustments - Sum of Line Credits
|
| Amount Due Original + Sum of Adjustments - Sum of Credits
|
Once you determine the discount line percent, use this as the discount percent in the formulas above.
Defaulting Discount Amounts
When you enter receipts manually, Receivables determines whether discounts are allowed based on the payment terms, discount grace days, system options, transaction date, and receipt apply date. If discounts are allowed, Receivables determines the amount of earned and unearned discounts and displays this information in the Discount field.
Review the example below to understand how Receivables displays discount information based on the apply date of the receipt. Assume that you are using the following information:
Unearned Discounts = Yes
Payment Terms: 10/10, 5/15, Net 30
Discount Grace Days = 0
Calculate Discount on Lines Only = No
Allow Discount on Partial Payments = Yes
Percent Date On Lines Only On Partial Payments
5 17-DEC-93 No Yes
10 12-DEC-93 No Yes
Invoice Details:
Invoice #101
Invoice Date = 02-DEC-93
Due Date = 01-JAN-94
Amount = $1100
The following table displays the default discount amounts based on different receipt application dates. You can also see the amount of earned and unearned discounts that your customers can take.
|
| From 02-DEC-93 to 12-DEC-93
| $990
| $110
| Discount Earned = 110, Total = 110
| $110
| None
|
| From 13-DEC-93 to 17-DEC-93
| $990
| *$52.11
| Discount Earned = 52.11, Total = 110
| $52.11
| $57.89
|
| After 17-DEC-93
| $990
| *0
| Discount Earned = 0, Total = 110
| None
| $110
|
| From 02-DEC-93
to 12-DEC-93
| **$1000
| $110
| Discount Earned = 110, Total = 110
| $110
| None
|
| From 13-DEC-93 to 17-DEC-93
| **$1000
| *$52.63
| Discount Earned = 52.63, Total = 110
| $52.63
| $47.37
|
| After 17-DEC-93
| **$1000
| *0
| Discount Earned = 0, Total = 110
| None
| $110
|
* To take the unearned discount you must update the amount in the Discount field
** $100 of the receipt is left as Unapplied
Determining the Default Amount to Apply
The profile option AR: Cash - Default Amount Applied determines how Receivables defaults applied receipt amounts into the receipt application windows.
Remaining Amount of the Invoice
If you choose 'Remaining Amount of the Invoice', the default amount applied is the remaining amount of the transaction, less any available discount. However, if the remaining amount of the receipt is less then the balance of the transaction, the default amount applied is the remaining amount of the receipt and Receivables takes the discount available on the transaction.
Unapplied Amount of the Receipt
If you choose 'Unapplied Amount of the Payment', Receivables uses the unapplied amount of the receipt (or the transaction amount, if this is less than the unapplied amount of the receipt), less any available discount, as the default.
Discounts in Post QuickCash
AutoCash Rules
Receivables uses the discount values that you assigned to your AutoCash rule set along with the payment terms, discount grace days, system options, transaction date, and receipt apply date to determine whether to include discount amounts.
If you choose any of the AutoCash rules, Post QuickCash first takes into account the maximum discount available before trying to apply the receipt.
For example, you are using Apply to the Oldest Invoice First as your AutoCash rule and your oldest invoice is $1000. The payment term associated with this invoice allows a maximum discount of $100 and your receipt amount is $6000. Post QuickCash first applies the $100 discount, which reduces the remaining amount of the invoice to $900, and then applies $900 of the receipt to close the invoice. After the application, you are left with $5100 to apply to the next oldest invoice.
If you are using one of the matching rules, such as Match Payment with Invoice, the receipt must match the invoice after the discount is taken. For example, if you have an invoice for $1000 and a maximum discount of $200, your receipt must be $800 before Post QuickCash can apply it to the invoice. See: Post QuickCash.
When The Discount Amount Exceeds the Maximum Discount
When the discount amount exceeds the maximum discount, Receivables uses the maximum discount as the discount taken. Receivables uses the following formulas to determine the earned discount amount and the maximum discount:
| Earned Discount
| =
| Receipt Amount * Discount Percent
1 - Discount Percent
|
|
|
|
|
Max.
Discount
| =
| Discount
Taken
| *
| Amount Due
Original
| -
| Highest
Discount
|
See Also
Defining Receivables System Options
Payment Terms
Entering Discount Information
AutoCash
Discount Projection Report
Profile Options
