Record a settlement or prompt payment discount - UK only

There are two methods you can use to deal with settlement discounts taken:

Method 1 - Post a discount with VAT included on customer receipt

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 applies if paid within the settlement terms, and when it must be paid 
• Advise the customer they can only recover the actual VAT amount paid and no credit note will be received for the discount amount

In Sage 50 Accounts, 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 sales invoice layout section.

Post a discount with VAT included on the customer receipt

If the invoice is paid by the agreed date, post a discount with VAT included. Do this when you record the sales receipt for the amount received.

NOTE: In the steps below, the following example is used: A sales invoice for £120.00, which is made up from £100.00 net plus £20.00 VAT, with a settlement discount of 10%.

1. Go to Bank accounts, then select Customer receipt.
2. Choose the customer account, then enter the receipt date, amount and any reference you want.
3. For the outstanding invoice, click the Receipt column and enter the amount the customer has paid. In our example, the amount paid is £90.00 + VAT = £108.00.
4. For the outstanding invoice, click the Discount column and enter the discount.
5. Click Save, then click Close. In our example, the discount amount is £10.00 + VAT = £12.00.
6. As the settlement discount includes VAT, check the Discount inc. VAT? checkbox.
7. Click Save.

You've now recorded the customer receipt and settlement discount. The discount posts a credit note to record the net discount, £10.00, on nominal code 4009. This also reduces your sales tax liability by the VAT element of the discount, in this example, £2.00.

Method 2 - Issue a full credit note to the customer for the discount taken

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 applis if the customer pays within the settlement terms, and when it must be paid 
• Advise the customer they can only recover the actual VAT amount paid and that no credit note will be received 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.

NOTE: 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.

1. Go to Invoices and credits, then click New credit.
2. In the Format drop-down, choose Service.
3. Enter the date you received payment from your customer.
4. In the A/C field, choose the customer account.
5. In the Details field, enter the relevant details, for example, Settlement discount, then press F3.
6. Click Edit Item Line.
7. In Qty/Hours, enter 1 and in the Unit Price enter the net element of the discount.
8. In Nominal, enter the relevant discount nominal code, for example, 4009.
9. In Tax Code, enter the same tax code used on the original invoice.
10. Click OK.
    
    

    NOTE: 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:
    
    £100.00 net, £20.00 VAT, tax code T1
    £200.00 net, £0.00 VAT, tax code T0
    
    The credit note should therefore show the following:
    
    £10.00 net, £2.00 VAT, tax code T1
    £2.00 net, £0.00 VAT, tax code T0

11. Click Save, then click Close.
12. Select the credit note and click Update ledgers.
13. Click Printer, then click OK and then click OK.
14. Click Bank accounts, then click Customer receipt.
15. Choose the customer account and enter the receipt date, amount and any reference you want.
16. For the outstanding invoice, click the Receipt column and click Pay in Full  for the outstanding credit.
17. Click the Receipt column and click Pay in Full.
18. Check the Analysis Total shows the amount received from the customer, then click Save, then click 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.