Discounts Allowed/Received [Archive]

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Columbia

06-02-05, 01:00

Hi I was hoping somebody might be able to point me in the right direction as to discounts. I understand and can easily work out Terms of Payments on an Invoice, however where I am confused is to how the customer knows how much to pay if they don't settle on time. ie-when we do an Invoice and say for example allow a 5% discount for prompt payment, we work out this discount and then incorporate it into the Invoice total, so what I'm really wanting to know is if the customer pays later than the agreed payment term how do they know how much extra to pay, or if they settle on time do they take a further discount? Should I really do the invoice without the discount and then type on it how much they should pay if they settle early, or am I just getting myself all confused for no reason (which wouldn't take much!) Hope someone can help as I am compiling detailed notes for revision purposes and would like to clarify this ASAP. Thanks

neogen

06-02-05, 01:00

From my understanding you would create the invoice to show the total amounts not including any discounts, then make a note on the invoice to state that if the invoice is paid within a certain time Â£x.xx or x% can be deducted. Therefore if they do not pay within the allocated time they pay the full invoice amount. Hope this helps Nick

Columbia

06-02-05, 01:00

Thanks Nick Thats what I thought you should do, the problem is that we do a lot of college based tests and in these we are expected to deduct the discount on the invoice. I suppose what it is, is that I am jumping the gun a bit and thinking ahead too much, when we haven't actually learnt discounts in full yet. My problem is that I have 12 years Sage accounts experience and the foundation stage sometimes doesn't move as fast as I would like so I end up with dilemmas! Any how, many thanks I will update my notes accordingly! Tracy

Columbia

08-02-05, 01:00

Slight update, Spoke to my tutor who says that you work out the invoice including the terms of payment discount (ie 5%) then if the customer did pay on time they would take a further 5% discount off of the net amount of the goods. So basically if the customer didn't pay on time they would still benefit from the original discount, but would have to pay the whole amount showing on the invoice sent to them. He also suggested that it would be beneficial to type the amount payable for promptness on the bottom of the invoice so that the correct amount minus discount is paid.

Barney

08-02-05, 01:00

Work your invoice as normal up to the net amount. Work into your invoice the TRADE DISCOUNT, if any With your new Net figure, EG: Â£200.00 Deduct the SETTLEMENT DISCOUNT percentage (5%) EG Â£200 less 5% = Â£190 - jot this on a bit of paper Now calculate the VAT on the Â£190 amount EG 17.5% of Â£190 is Â£33.25 Now ADD the VAT Â£33.25 to the original net figure of Â£200. EG Â£33.25 + Â£200 = Â£233.25 NET Â£200.00 - figure before SETTLEMENT DISC VAT Â£ 33.25 - vat amount on settlement discount figure TOTAL Â£233.35 Settlement Discount of 5% before 14 days If the customer takes the SETTLEMENT DISCOUNT in time, He will deduct 5% - or whatever the settlement discount figure is offered He will deduct 5% from the net figure of Â£200, then add the VAT as shown, that being Â£33.25. - NOTE the VAT will remain discounted, but that is allowed within VAT regulations Should he not take the SETTLEMENT DISCOUNT on time, he just pays the Â£233.35, as per the invoice - HOPE THIS HELPS !!!!

Columbia

08-02-05, 01:00

Thanks for going to the trouble of explaining in such detail Barney, I understand the concept fully now! Tracy