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Sales Settlement Discounts

Sales Settlement Discounts

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Sales Settlement Discounts

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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.

On each method it is important to check that the Tax is only being handled once. Any settlement discounts taken are entered under a stock item part number of ‘DISCOUNT’. If that part number does not exist the system will create it automatically. You must ensure the Tax code is correct for the method above (eg: Zero rated on ‘Reduced Tax on Invoice’ and Standard rated on ‘Full tax on Invoice).   Also allocate this item an appropriate Category so the settlement discounts are shown as you want them in reports.

The message on the invoice will be something like: ‘You may deduct 45.70 if paid before 14 Apr 2012’.

To set up the amount and period for each customer

In Contacts, for each customer who is allowed settlement discount, select the ‘Sale’ tab, set the ‘Settlement Discount’ to the percentage of discount to offer (leave at zero for no settlement discount), set the ‘Default Credit Days’ to the number of days to be paid by.

Note: There are also Credit days codes to set the payment due date to a consistent date of each month (this is useful if the customer has a lot of invoices and different ones become due nearly every day). Use 8?? for payment by the ?? of the following month and 9?? for payment by the ?? day of the month after next month (eg: 814 on an invoice dated 7-Mar-2012 would result in message ‘... if paid before 14 Apr 2012’).Any settlement discounts taken on Sales Payments (in Contacts / Payments) will create a credit invoice created using a stock item part number of ‘DISCOUNT’. If that part number does not exist the system will create it automatically. You must ensure the Tax code is correct for the appropriate method (eg: Zero rated on ‘Reduced Tax on Invoice’ and Standard rated on ‘Full tax on Invoice). Also allocate this item an appropriate Category so the settlement discounts are shown as required in reports etc.

To set up which items attract settlement discount

To set up which items attract a settlement discount (and which do not) - Select Items, then Categories and set which categories do not attract discounts by changing the Settlement Discount checkbox (eg: Categories for: Postage, fees etc.)

Entering a Settlement Discount

To accept a settlement discount on a payment - Select Contacts and then select Payments. This should show all amounts owing. To accept a settlement discount on an invoice select ‘Edit / Disc’ from the left menu, then enter the amount of the settlement discount being given (if within the credit terms). The system will create a credit invoice to balance the payment to the sale. For example if the invoice was for 250.00 and the settlement discount was 12.50 the amount to be paid would be 237.50 (250.00 – 12.50). Settlement Discount is where a discount is offered only on condition that the invoice is paid by a certain date. There are 2 different method of Settlement Discount: