Settlement Discount is when a discount is offered if the payment is made before a specific time
There are different methods of Settlement Discount depending on your local tax laws:
1.Reduced Tax on Invoice – This method reduces the tax amount on the invoice to what it would be with the settlement taken, so the buyer pays the reduced tax even if the discount is never taken. When the settlement is entered, when taking a payment, then a separate credit invoice for the discount is created which should have no tax claimed. Note: The seller will pay less tax but the buyer will claim less, so the tax man will get the same in the end. WARNING: This method is only legal in certain countries (Legal as at printing in the UK).
2.Full tax on Invoice – This does not adjust any amounts on the Invoice, it just puts the settlement message on the invoice. Then, when the settlement is entered on a payment, a credit for the discount is created which should have the tax on the discount claimed.
You can set which method to use by selecting ‘Settings’ from the top menu, select the ‘System’ main tab and then the ‘Accounts’ sub tab. There is a ‘Settlement Discount’ method selection option. On each method it is important to check that the Tax is only being handled once.