Purchase Orders and Prompt Payment Discount. | AccountingWEB

Purchase Orders and Prompt Payment Discount.


 today I was preparing a purchase invoice from a supplier's quote. The quote was for a fixed asset and offered a prompt payment discount of £200. The item's cost is £3,500 and we'll be taking the prompt payment. I prepared the purchase invoice using the PoP module, but couldn't get the net value of the order to be £3,300. I looked at the footer details tab and saw the settlement terms box.The discount offers a percentage but not an absolute figure. I would like the purchase invoice to show the quote price (£3,500), less the settlement discount (£200) leaving a net price of, in this example, £3,300. Any help appreciated :-)

petersaxton's picture


petersaxton | | Permalink

Is there any VAT involved?

Witch-Queen's picture

Purchase Orders and Prompt Payment Discount

Witch-Queen | | Permalink

Not sure what version you are using but I've just done this in L50 2010

In POP create your order with a price of £3500.00. On the Description line you will see a white arrow in a grey circle on the right of the line - click it. (This arrow only becomes live after you have entered a product code. If you use S1 this box will pop up automatically)

You will now see a box pop up called Edit Line Item, detailing the order, in the middle of the box you will see 'Quantity, Unit price, Discount % and Discount GBP £'. Forget the % box and type the £200.00 in the Discount GBP £ box. Sage will then calculate the correct % and enter it in the Discount % box for you.

Sage will also recalculate the VAT to take the discount into account. You will need to check this against the Suppliers Invoice when it arrives before you 'Complete' the order. If the VAT is different, go back to this same box again to amend it.

If the 'VAT GBP £' box is greyed out, close all open windows in Sage - go to the Settings menu and choose Company Preferences - on the VAT Tab put a tick in the little box next to 'Item VAT Amendable' and click OK. You will now be able to go back to the order and change the VAT amount that Sage automatically calculated.

Whilst in the box, remember to change the default nominal code to the correct asset code you want to use.

 -- Witch-Queen

PS: Just a quick note on your terminology - You are raising a Purchase Order NOT a Purchase Invoice. The Supplier raises the Invoice.


D_Smith | | Permalink

 Thanks for your help :-)

I meant Purchase Order :-)
I posted this last night after a busy day at work !

Discounts Taken Nominal not updated

D_Smith | | Permalink


I recorded the discount in the purchase order, updated it to post to the ledger, and today I paid it.

I then checked the nominal code 5009 - discounts taken - to see if the £200 had been put there - but it hadn't.

Have I done something wrong?

Thanks in advance.

Witch-Queen's picture


Witch-Queen | | Permalink

Hi D_Smith,

No you've done nothing wrong.

Discount will only show in 5009 if the discount is taken as part of paying off the invoice. ie. the invoice was entered as £3500 and the £200 was entered in the discount column on the supplier payment screen.

What you wanted was to show the discount as deducted from the Order value. Therefore the net amount of £3300 has been posted to your asset nominal.

email [email protected] and I will reply with a phone number if you need further help.

-- Karen aka Witch-Queen

Geoff Stephens's picture

Settlement discount

Geoff Stephens | | Permalink

Hello D_Smith,

Your processing of the transaction to which you refer is fundamentally incorrect.

Your supplier has offered you a prompt payment discount - a settlement discount. You do not recognise this on a purchase order.

Settlement discount is usually layed out and offered on the suppliers invoice. The discount will be contingent on fulfilling the discount terms and is only recognised at that point. You are right however to expect to the see the settlement discount in the P&L - nominal code '5009', once the supplier's invoice has been paid, having fulfilled the terms.

Contrast this with trade discount. If your supplier offered to sell you the asset for £3,300, marked down from £3,500 - no prompt payment required - then this would effectively be trade discount. Trade dsicount is not recorded in the books.

As a result of your postings you now have an asset recorded in the nominal ledger (and I assume the fixed asset register too) at the incorrect value. Following on from this your periodic depreciation charge to the P&L will also be incorrect. And, as you've already found, you haven't got any settlement discount showing in the P&L.

petersaxton's picture


petersaxton | | Permalink

You also have to calculate the VAT correctly when dealing with a settlement discount.

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