How to account for customers who use an early pay discount we offer?

tsfjax

Hello all. I offer my customers a 1% 10, net 45 option and while most customers opt for cashflow v. discount, I have one that has started using it (smarter, IMHO). I know the easiest way is to just discount the invoice by 1% and call it a day, but I'd like to fully recognize the revenue and account for the discount taken as a metric.

Anyone have a best practice on how to accomplish it without getting crazy complex? Or should I KISS it and move on?

mhammadlatifACCA

Yes its possible! If you are still an active user; lemme know; I ll tell you how!

tsfjax

Thanks for the reply, @mhammadlatifACCA! I am definitely still interested. What work around have you come up with?

mhammadlatifACCA

Following work around can be used to record ADJUSTMENTS TO INVOICES BY NOT NETTING THE INVOICE BUT AS A SEPARATE ADJUSTMENT FROM THE GROSS AMOUNT OF INVOICE

Uses can be:

• Early payment discount
• Recoverable tax deductions
• Non-recoverable tax deductions
• Price adjustments
• ANY ADJUSTMENT THAT YOU DO NOT WANT TO SHOW ON THE FACE OF INVOICE

@tsfjax Its possible but you will need to do following:

1. Record a payment against your sales invoice with an amount net of early payment discount.
2. Create a new account with a name let's say "Early Payment Discount" in the Chart of accounts (Suggestion is to open it under Income)
3. Create a clearing account in one of the following categories (other categories not allowed)

• Assets > Cash & Banks
• Assets > Money in Transit
• Liabilities & Credit cards > Credit Card
• Liabilities & Credit cards > Loan and Line of Credit
  For example: "Early payment discount clearing account" under Assets > Cash & Banks

4. Record a second payment against your sales invoice equaling the discount amount and choose the above created "Early payment discount clearing account" as Payment account
5. Enter a Journal transaction to clear balance from clearing account and transfer it to the account where you want to see early payment discount (My suggestion is to open it under Income so as debits to it are shown as negative amounts in revenue)

I used the above technique to book non-recoverable income tax deducted at source which I didnt want to put on the face of invoice.

Let me know if this works for you too! See you around!

FYI @MrsThornton @BarsinA @CallieP

mhammadlatifACCA

Okay. Record two payments.

1. Amount net of early payment discount that you received in your Bank account
2. Amount of early payment discount not received in bank; tip is use "Early payment discount" account as payment account (create a clearing account under Cash & Banks if your "Early payment discount" account doesn't appear in the drop down (payment account) on record a payment window. You will need to enter a journal transaction to clear the clearing account and then transfer it to your "Early payment discount" account.

I hope this helps. Let me know if you have any issues implementing this.

FYI @MrsThornton @BarsinA @CallieP please share with others too!

tsfjax

@mhammadlatifACCA This is great — thanks!! 🙏🏻