If you offer customers discount, perhaps for early payment, you can apply settlement discount on your Sales Order. The way that settlement discount works in the UK is that the paperwork to your customer, the Sales Invoice, shows the undiscounted net amount, and a discounted tax amount. Only the tax is reduced in case they do not take advantage of the discount. Look at this example:
| Invoice with no discount | Invoice with 10% discount for payment within 10 days |
| Net | £100.00 | Net | £100.00 | ||
| Tax | £20.00 | Tax | £18.00 | ||
| Total | £120.00 | Total | £118.00 | If not paid on time | |
| Total | £108.00 | If paid within 10 days |
Why is the total different?
The thing to focus on is that a settlement discount is effectively a finance charge. What you are essentially saying to your customer (using the example above) is that if they pay within 10 days, then they can pay £90 plus VAT, so the total is £108. If they pay after that then they must also pay a £10 finance charge. Since finance charges are VAT excempt the VAT remains at £18 and total becomes £118. When you generate the invoice the total includes the finance charge; it is up to your customer to take advantage of the discount and pay the reduced amount.
Applying Settlement Discount
When settlement discount is added to a Sales Order in Brightpearl it will only be taken off the tax amount to comply with the reasoning above.
If they pay within 10 days they will pay £108 (£120 - 10%), so when you receive the payment an adjustment will have to be created for the remaining £10.
To enter settlement discount on a Sales Order, enter the percentage discount and the number of days from the invoice date it will apply and then click Apply, this will apply the discount to the tax amount for every row on an order:
Receiving Payment for a Sales Order with Settlement Discount
When you receive payment for the order you will have 2 scenarios:
- The customer does not take advantage of the discount and pays the full amount, in this example £118. You don't need to do anything different when receipting the full amount.
- The customer takes advantage of the discount and, in this example, pays £108.
To allocate the payment when they take advantage of the discount do the following:
- Go to the customer account and select Allocate payment.
- In the "To pay now" field for the invoice, type the discounted amount you wish to pay, using the example above, enter £108.
- Enter the remaining amount (the discount) into the "Adjustment" field, in this example £10.
- Select the nominal code to allocate the adjustment to; you should create a "Sales Settlement Discount" nominal code (in the 4000-4999 range) and select Yes to "Allocate discounts to this account?".
- Select the bank account the payment will be received into.
- Enter the payment reference number.
- Click the Allocate payment button.
That will completely clear the invoice from the supplier account and display as settlement discount on your profit & loss.
