Term Discounts for Sales Transactions in SuiteTax
Learn how SuiteTax manages term discounts, also called "prompt payment discounts", and the associated tax adjustments. You can configure preferences, learn how the system calculates discounts, and how adjustment transactions are handled.
A term discount provides a reduction on an invoice when payment is made within a specified term. For example, you can deduct 2% from the amount due if the payment is made within 10 days. Otherwise, you must pay the full amount.
SuiteTax can automatically manage both the discount and the related tax adjustment in a credit memo transaction when payments are made early, reducing manual work and helping ensure tax compliance.
If you want to customize any role for recording payment with term discounts, ensure the permission is provided for the Tax Details tab to edit the level, and the permission to create credit memo transaction.
Prerequisites
To generate adjustment transaction for the term discount amount at the time of payment, enable the Create Adjustment Transactions for Term Discounts accounting preference for other items or transactions.
To adjust tax amount along with term discount amount, enable the Include Tax for Term Discounts preference at the nexus level.
Term Discounts on Transactions
When you enable the Create Adjustment Transactions for Term Discounts accounting preference, the system creates an Other Charge item called the "Prompt Payment Discount (PPD)" item in the background.
The tax calculation on term discounts is currently available only for sales transactions.
Example
Your invoice has a subtotal of $1,000 and tax of $50, and the term discount is 10%. If the nexus preference is enabled, the discount is 10% of $1,050 ($105). If the preference is not enabled, the discount is 10% of $1,000 ($100).
Adjustment Transactions for Term Discounts
When a payment qualifies for a term discount and the nexus preference is enabled, SuiteTax automatically creates an adjustment transaction for the discount and the associated tax. For example, a credit memo is created for invoices.
Adjustment transactions are system-generated and connected to the original transaction and payment. They can't be edited or deleted manually.
Item Record Used in Term Discount Adjustment Transactions
SuiteTax uses a system-generated Other Charge item type called "Prompt Payment Discount (PPD)" when posting adjustment transactions.
The prompt payment discount item must remain active. If you delete it or make it inactive, adjustment transactions won't be created. If you do delete the item, you should first disable the accounting preference and then enable it again. The prompt payment discount item will be created again.
When enabling the term discounts feature, make sure you select the default accounts so that the prompt payment discount item is created correctly.
If you change default accounts at the accounting preferences level, existing transactions and the prompt payment discount item aren't updated automatically. You should update the item's account manually as needed.
If the prompt payment discount item wasn't created, you'll need to go to the accounting preference and first disable it and then enable it again.
Example
You have an invoice for $1,000 plus $50 in tax, with a 10% discount term. If the Include Tax for Term Discounts preference is enabled and you pay within the discount period, the system calculates a $105 discount and your due payment is then $945. SuiteTax then automatically creates a credit memo for $105 connected to the payment and invoice, which adjusts both expense and tax amounts.