How is Settlement Discount Treated During Allocation?

Account Allocations (ACA), and online allocation as part of the ledger entry process, can automatically calculate and apply any settlement discount due on the transactions marked for allocation against a single cash payment on debtor/receivables, creditor/payables or client accounts.

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

If, when you choose to post or save allocations the allocations do not balance, the posting process calculates the discount available and includes this in the allocation balancing.

If the allocations still do not balance it checks the discount tolerances. If the remaining out-of-balance amount is within the discount tolerances, the difference is allowed as additional discount.

If not, the system allows you to decide how to proceed. If the transactions are eligible for discount it allows you to apply the out-of-balance amount as discount. Alternatively, it allows you to generate and post an additional, balancing transaction. You can also choose to alter the allocations, for example you might want to split a transaction.

Note: If tax is to be calculated on settlement discount, this is also calculated at this stage.

Calculating the Discount

The system reviews all of the invoice and credit note transactions selected for allocation. It uses the transaction payment term details to determine whether discount is allowed, and if so to calculate the discount. In particular it uses the two discount due dates and discount percentages.

The discount is only calculated automatically when allocating against a single cash payment because it uses the cash payment date to determine whether or not the discount has been earned.

Note: The payment terms code assigned to the customer or supplier account is displayed in the Account Details tab on the Search Results - Account Allocation form, depending on the version of this form you are using. The two discount term days and discount percentages are identified.

The total discount allowed is then compared to the allocation out-of-balance amount. If this discount amount balances the allocations, the discount journal and the allocations are posted automatically.

If the total available discount is greater than the out-of-balance amount, the discount for each transaction is reduced on a pro rata basis to achieve a balance. The discount journal and the allocations are posted automatically.

Reviewing the Discount Tolerances

If, after including the amount of discount allowed, the allocations still do not balance, any discount tolerances are applied. Discount tolerances are defined in Journal Type (JNT) and can be defined as a percentage difference and/or a tolerance amount. These tolerances are applied to the difference between the calculated discount and the amount of discount that appears to have been taken, which is the matching out-of-balance amount.

If the out-of-balance amount is within the discount tolerance amount or percentage, it is allowed as additional discount. The discount journal and the allocations are posted automatically.

Manually Applying the Discount

If after applying the discount and the discount tolerances, the available discount is less than is required to balance the allocations, the matching process does not post the discount journal or the allocations. Instead, it allows you to choose whether to apply the entire out-of-balance amount as discount, or to balance the allocations in some other way.

Generating the Discount Transactions

The matching process posts the discount to either the input or output discount account identified in Journal Type (JNT), depending on whether the discount is on sales or purchase transactions. If the discount account has not been defined, it prompts you to enter the account code.

Note: If a discount budget is going to be exceeded, you are warned.