Supplier Discount & Settlement Discount
If your supplier offers you discount on your purchases, perhaps for early payment, you can apply settlement discount on your Purchase Order. The way that settlement discount works in the UK is that the paperwork from your supplier, the Purchase Invoice, shows the undiscounted net amount, and a discounted tax amount. Only the tax is reduced in case you do not take advantage of the discount.
Why is the total different?
The thing to focus on is that a settlement discount is effectively a finance charge. What your supplier is essentially saying (in the example above) is that if you pay within 10 days, then you can pay £90 plus VAT, so the total is £108. If you pay after that then you must also pay a £10 finance charge. Since finance charges are VAT exempt the VAT remains at £18 and total becomes £118. When you receive the invoice you will be billed for the total including the finance charge and it is up to you to pay the reduced amount to take advantage of the discount.
Applying Settlement Discount
When settlement discount is added to a Purchase Order in Brightpearl it will only be taken off the tax amount to correspond with the Purchase Invoice from your supplier.
If you pay within 10 days you will pay £108 (£120 - 10%), so when you make the payment an adjustment will have to be created for the remaining £10.
To enter settlement discount on a Purchase 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
Paying for an Purchase Order with Settlement Discount
When you come to pay for the order you will have 2 scenarios:
- You do not take advantage of the discount and pay the full amount, in this example £118. You don't need to do anything different when paying the full amount.
- You take advantage of the discount and, in this example, pay £108.
To take advantage of the discount do the following:
- Go to the supplier 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 "Purchase Settlement Discount" nominal code (in the 5000-5999 range) and select Yes to "Allocate discounts to this account?".
- Select the bank account the payment will come from.
- Enter a 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.