How is discount and inclusive tax determined?

The discount terms for a supplier or customer are identified by the payment terms. Payment terms are defined using Payment Terms (PYT) and assigned to a supplier or customer using Supplier (SUS) or Customers (CUS).

The payment terms assigned to a customer or supplier are used to calculate the payment and discount terms for any transactions entered for the accounts. These terms can also be entered or amended manually on transactions.

The payment terms can determine two levels of discount. These are used to calculate two discount due dates and the amount of discount available on each date. The discount terms are linked. The first discount terms identify the highest level of discount available. The second discount terms identify a lower level of discount that may be allowed after the first terms have expired. Both sets of discount terms are optional.

Calculating the Discount Due

There are several functions that calculate discount automatically: Payment Run, Payment Collection Run, Account Allocation, Online Allocation, and Transaction Matching.

Note: The matching processes will not calculate discount if the Write On/Write Off Balancing feature is enabled in Business Unit Setup. This feature turns off the automatic discount calculations.

These functions use the discount details that exist on the relevant transactions to test whether or not the transaction is eligible for discount, and if so to calculate the amount of discount on offer.

A transaction is eligible for the first discount if the discount date is on, or before the processing date. The processing date depends on the function, for example for Payment Run it is the Base Date for Discount entered in the Payment Run.

Note: A number of days tolerance can be applied to the discount due dates for selected journal types, and customer accounts. This number of days is added to the calculated discount date to extend the discount due date. This tolerance is set for a customer using Customers (CUS) and a journal type using Journal Type (JNT).

The discount amount is calculated by multiplying the transaction amount by the first discount percentage on the payment terms. If the transaction is no longer eligible for the first discount because the first discount due date is passed, then the second discount due date is checked to see whether this level of discount is still available. If it is, the discount amount is calculated using the second discount percentage.

Tax on Settlement Discount

When the system calculates settlement discount it can also optionally calculate and record any tax included in the discount amount automatically. This is defined in the Tax on Settlement Discount and Dimension fields in the Tax section of the Sequence Dimensions tab on Ledger Setup (LES), and also in Tax Details (TXD).

You can specify a tax account to record the tax included in any settlement discount amount. Postings are made to this account for each combination of analysis codes.