Early Payment Discount
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Early Payment Discount
An early payment discount is a reduction of the balance due on a sales invoice offered to a credit customer for payment by a deadline earlier than the regular due date. Early payment discounts are usually offered to incentivize faster payment and minimize carrying costs of receivables.
Note
An early payment discount is not an ordinary discount as that term is generally used throughout Manager. Normally, a discount is a percentage or fixed amount price reduction on an individual line item. An early payment discount applies to an entire invoice.
An early payment discount is not an ordinary discount as that term is generally used throughout Manager. Normally, a discount is a percentage or fixed amount price reduction on an individual line item. An early payment discount applies to an entire invoice.
Example
Brilliant Industries regularly extends credit to customers by issuing sales invoices net 30 days. In other words, the due date on each new invoice is 30 days in the future. But it offers a 5% early payment discount if customers pay within 10 days.
Brilliant Industries regularly extends credit to customers by issuing sales invoices net 30 days. In other words, the due date on each new invoice is 30 days in the future. But it offers a 5% early payment discount if customers pay within 10 days.
As issuer of a sales invoice, you cannot know in advance whether a customer will take advantage of your early payment discount or wait until the due date to pay the full amount. So your sales invoice cannot adjust prices in anticipation. Nor is it good practice to edit the sales invoice after the fact if the customer pays early. Yet when a customer pays early and reduces payment, you still must clear the full balance due for the sales invoice in Accounts receivable. Therefore, you must offer the early payment discount on the sales invoice; but, adjust your accounting only if the customer pays early.
To offer an early payment discount, check the Early payment discount box near the bottom of the sales invoice entry screen. A dropdown box for Percentage or Exact amount, a field for the corresponding rate or amount, and another field for If paid within __ days will all appear:
Choose a method; fill in the percentage discount rate or fixed amount, as appropriate; and enter the number of days until the payment deadline. The resulting sales invoice will include the early payment discount amount, the payment deadline, and the reduced balance due if payment is received by the deadline.
Example
Brilliant issues a sales invoice to Bob’s Hardware for a lamp kit, offering its standard early payment discount described above. The sales invoice entry is completed as below:
Brilliant issues a sales invoice to Bob’s Hardware for a lamp kit, offering its standard early payment discount described above. The sales invoice entry is completed as below:
The sales invoice appears like this:
Note
Processing Early Payment Discounts is a two step process. To clear the total invoice balance you need to process a Credit Note after payment is received.