An early payment discount is one form of trade finance and a way for companies to obtain a discount on a supplier’s invoice in exchange for paying the supplier early. In other words, a company pays less than the full amount due while the supplier receives payment earlier than they would under standard payment terms.
Do the setup as per the requirement by entering early discount/ late charges in days and its rate in percentage. For doing the setup navigate to below paths.
Navigate to: Common data → BP tables → Early discount/late charge
As in the above Image –
- – (minus) in rates indicates discount while rest are charges.
- For 0 to – 4 days, the system will consider no discount.
- For – 5 to – 09 days, the system will consider – 1% discount.
- For – 10 and above days, the system will consider – 10% discount.
- Whereas 0 to 9 days, the system will not consider any discount or charges, because it is set to 0.
- 10 to 29, days system will consider 5% late charges.
- 30 to 59 days, the system will consider 8 % late charges.
- And 60 and above, system will consider 10 % late charges.
Now, Navigate to: Parameter –> A/P-A/R accounting –> Payment attributes
Make sure that it has to be Account<=> BP and marked as early discount.
Now, Navigate to: Parameter → General parameters → Parameter values → Business Partners (TRS) → Early Disc (TDC).
Right click and go to detail, and enter the default Payment attributes against the line no 4 and 6, which you have created above.
Also, select the due date for the calculation of Discounts / Charges. The possible values are – Open item due date and Invoice date.
Don’t forget to tag account against discount or late charges. To add the same, Navigate to:
Parameter → Financials → Accounting interface → Accounting codes → Payment
Enter the desired location for loss and profit.
Now go to payment terms and define the payment term. Please note that based on Payment term date and Due date basis (Open item or Invoice date) system will consider the Due date.
Now to check, if this is working as per setup, navigate to A/P-A/R accounting → Invoicing → Supplier BP Invoice.
Create a new Invoice and select Early Discount / Late charge, which you have created above.
Here due date basis and Accounting date is 08/16/19 and the due date is 09/22/19 – Refer above screen shot.
After posting Invoice go to A/P-A/R accounting → Payments → Payment/receipt entry.
Create a Payment entry for the created Invoice. Please make sure that you are creating payment either Backdated or on a future date to avail the early discount / late charges.
As soon as you will select Invoice no, the system will auto calculate Discount/Charges. Refer below screen shot.
As you can see the system has granted 2% early discount.
The setup explained above is used to calculate the early discount and Late charges.
Hope this works.
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