Before you start
A new option is available to help you post your prompt payment discounts. To ensure this feature is enabled, please install the latest updates to your software from www.sage.co.uk/au
Customer pays before or at point of invoice
Create an invoice for the discounted amount.
For example, you've a customer to invoice for £100 net and £20 VAT, with a settlement discount of 20%. Create an invoice for the discounted amount, £80 net and £16 VAT.
If you want to record how much discount you've given, use steps in the section Customer pays the invoice later.
Customer pays the invoice later
There are two methods you can use to deal with settlement discounts taken:
1. Show the terms of the settlement discount on your invoices
To post settlement discounts this way, you must ensure that the invoices you issue:
- Show the rate of settlement discount that will apply if the customer pays within the settlement terms, and when it must be paid by.
- Advise the customer that they can only recover the actual VAT amount paid and that no credit note will be issued for the discount amount.
In Sage Accounts v22 there's an invoice layout available called A4 Inv Settlement Discount - Plain Paper (Print or Email). This layout shows the settlement discount terms below the delivery address at the bottom of the layout. If you prefer you can edit your own invoice layout to add settlement terms. For more information, refer to the Edit your invoice layout tab.
2. To post a discount with VAT included on the customer receipt
If the customer pays the invoice by the agreed date, post a discount with VAT included when you record the sales receipt for the amount received.
In the steps below, the following example is used: A sales invoice for £120, which is made up from £100 net plus £20 VAT, with a settlement discount of 10%.
- Bank accounts > Customer receipt.
- Choose the customer account > enter the receipt date, amount and any reference you want.
- For the outstanding invoice > click the Receipt column > enter the amount the customer has paid. In our example, the amount paid is £90 + VAT = £108
- For the outstanding invoice > click the Discount column > enter the discount > Save > Close. In our example, the discount amount is £10 + VAT = £12
- As the settlement discount should include VAT, check the Discount inc. VAT? check box.
- Save.
You've now recorded the customer receipt and settlement discount. The discount posts a credit note that records the net discount, £10, against the nominal code, 4009, and reduces your sales tax liability by the VAT element of the discount, in this example, £2.
1. Show the terms of the settlement discount on your invoices
To post settlement discounts as batch credits, you must ensure that the invoices you issue:
- Show the rate of settlement discount that will apply if the customer pays within the settlement terms, and when it must be paid by.
- Advise the customer that they can only recover the actual VAT amount paid and that no credit note will be issued for the discount amount.
If you're using Sage Accounts 2013 (v19) or above, when you install your software update, this installs an additional invoice layout called A4 Inv Settlement Discount - Plain Paper (Print or Email). This layout shows the settlement discount terms below the delivery address at the bottom of the layout. If you prefer, or if you're using Sage Accounts 2012 (v18) or below, you can edit your own invoice layout to add settlement terms. For more information, refer to the Edit your invoice layout tab.
2. To post a batch credit and sales receipt to record settlement discount taken
If the customer pays the invoice by the agreed date, post a batch credit
for the discount and record the sales receipt for the amount received.
If you credit an invoice dated before 01/04/2015, and you'd like to reduce the VAT value on the credit note to match the invoice, go to Settings > Company Preferences > VAT > select Item VAT Amendable > OK. Then when entering the credit note, enter the required VAT value.
- Customers > Batch credit.
Sage Accounts 2012 (v18) and below - Customers > Credit.
- Complete the Batch Customer Credit window as follows:
Date |
N/C |
Net |
T/C |
VAT |
Enter date the invoice was paid. |
Enter the relevant discount nominal code, for example, 4009. |
The net proportion of the discount taken. |
The same tax code as the original invoice. |
The VAT proportion of the discount taken. |
If the invoice contains a mixture of tax codes, to ensure your VAT Return is correct, you must split the discount between the relevant tax codes on the credit note. For example, an invoice shows a settlement discount of 10% and has the following items:
£100 net, £20 VAT, tax code T1
£200 net, £0 VAT, tax code T0
The credit note should therefore show the following:
£10 net, £2 VAT, tax code T1
£20 net, £0 VAT, tax code T0
- Save > Close.
- Bank accounts > Customer receipt.
Sage Accounts 2014 (v20) and below - Bank > Customer Receipt.
- Choose the customer account > enter the receipt date, amount and any reference you want.
- For the outstanding invoice > click the Receipt column > Pay in Full > for the outstanding credit > click the Receipt column > Pay in Full > check the Analysis Total shows the amount received from the customer > Save > Close.
When posting a customer receipt, don't use the discount column for settlement discounts. This calculates the VAT incorrectly.
You've now recorded the customer receipt and a batch credit for the discount. The credit records the net discount taken in the relevant nominal account, and reduces your sales tax liability by the VAT element of the discount.
If your customer pays you within the settlement period and takes the discount, and your original invoice didn't show the following information:
- Show the rate of settlement discount that will apply if the customer pays within the settlement terms, and when it must be paid by.
- Advise the customer that they can only recover the actual VAT amount paid and that no credit note will be issued for the discount amount.
You must issue a credit note to your customer for the discount amount. You can then allocate this to the invoice along with the payment received.
If you credit an invoice dated before 01/04/2015, and you'd like to reduce the VAT value on the credit note to match the invoice, go to Settings > Company Preferences > VAT > select Item VAT Amendable > OK. Then within the credit note, click on each line, press F3, and enter the required VAT value.
- Invoices and credits > New credit > Format > Choose Service.
Sage Accounts 2014 (v20) and below - Customers > Invoice List > New/Edit Invoice > Type > choose Credit > Format > Choose Service.
- Date > enter the date you received payment from your customer > A/C > choose the customer account.
- Details > enter the relevant details, for example, Settlement discount > press F3.
- Edit Item Line window > Qty/Hours > enter 1 > Unit Price > enter the net element of the discount > Nominal > enter the relevant discount nominal code, for example, 4009 > Tax Code > enter the same tax code used on the original invoice > OK.
If the invoice contains a mixture of tax codes, to ensure your VAT Return is correct, you must split the discount between the relevant tax codes on the credit note. For example, an invoice shows a settlement discount of 10% and has the following items:
£100 net, £20 VAT, tax code T1
£200 net, £0 VAT, tax code T0
The credit note should therefore show the following:
£10 net, £2 VAT, tax code T1
£20 net, £0 VAT, tax code T0
- Save > Close > select the credit note > Update ledgers > Printer > OK > OK.
- Bank accounts > Customer receipt.
Sage Accounts 2014 (v20) and below - Bank > Customer Receipt.
- Choose the customer account > enter the receipt date, amount and any reference you want.
- For the outstanding invoice > click the Receipt column > Pay in Full > for the outstanding credit > click the Receipt column > Pay in Full > check the Analysis Total shows the amount received from the customer > Save > Close.
When posting a customer receipt, don't use the discount column for settlement discounts. This calculates the VAT incorrectly.
You've now recorded the customer receipt and issued a credit note for the discount which you should give to your customer. The credit note records the net discount taken in the relevant nominal account, and reduces your sales tax liability by the VAT element of the discount.
Settlement discount from your supplier
Enter the invoice or order for the full net and VAT value.
If you meet the settlement terms, enter a discount with VAT included when posting the supplier payment for the invoice.
In the steps below, the following example is used: A purchase invoice for £120, which is made up from £100 net plus £20 VAT, with a settlement discount of 10%.
- Bank accounts > Supplier payment.
- Choose the supplier account > enter the payment date, amount and any reference you want.
- For the outstanding invoice > click the Payment column > enter the amount you're paying. In our example, the amount paid is £90 + VAT = £108.
- For the outstanding invoice > click the Discount column > enter the discount > Save > Close. In our example, the discount amount is £10 + VAT = £12.
- As the settlement discount should include VAT, check the Discount inc. VAT? check box.
- Save.
You've now recorded the supplier payment and settlement discount. The discount posts a credit note that records the net discount, £10, against the nominal code, 5009, and reduces your purchase tax liability by the VAT element of the discount, in this example, £2.
Enter the invoice or order for the full net and VAT value.
If you meet the settlement terms, create a supplier batch credit note for the discount and offset it against the purchase invoice.
- Suppliers > Batch credit.
- Complete the Batch Supplier Credit window as follows:
Date |
N/C |
Net |
T/C |
VAT |
Enter date the invoice was paid. |
Enter the relevant discount nominal code, for example, 5009. |
The net proportion of the discount taken. |
The same tax code as the original invoice. |
The VAT proportion of the discount taken. |
If the invoice contains a mixture of tax codes, to ensure your VAT Return is correct, you must split the discount between the relevant tax codes on the credit note. For example, an invoice shows a settlement discount of 10% and has the following items:
£100 net, £20 VAT, tax code T1
£200 net, £0 VAT, tax code T0
The credit note should therefore show the following:
£10 net, £2 VAT, tax code T1
£20 net, £0 VAT, tax code T0
- Save > Close.
- Bank accounts > Supplier payment.
Sage Accounts 2014 (v20) and below - Bank > Supplier Payment.
-
Choose the supplier account > enter the payment date, amount and any reference you want.
- For the outstanding invoice > click the Payment column > Pay in Full > for the outstanding credit > click the Payment column > Pay in Full > check the Analysis Total shows the amount to be pad to the supplier > Save > Close.
When posting a supplier payment, don't use the discount column for settlement discounts. This calculates the VAT incorrectly.
You've now recorded the supplier payment and a batch credit for the discount. The credit records the net discount taken in the relevant nominal account, and reduces your purchase tax liability by the VAT element of the discount.