discount for early invoice payment

[Chris Good]

From: Geert Janssens [mailto:geert.gnucash at kobaltwit.be] 
Sent: Saturday, 5 September 2015 1:47 AM
To: gnucash-user at gnucash.org
Cc: Chris Good <chris.good at ozemail.com.au>
Subject: Re: discount for early invoice payment

 

Hi Chris,

 

On Saturday 29 August 2015 12:32:30 Chris Good wrote:

> Hi,

> 

> 

> 

> I'm updating GnuCash Guide for billing terms & sales tax tables, and I

> thought I'd update the section on account setup to include a tax

> account and discount account.

> 

> 

> 

> Anyone know where Geert's document on how to fix up payment problems

> is?

> 

Do you mean this one:

 

http://wiki.gnucash.org/wiki/Correcting_Business_Transaction_Mistakes

> 

> 

> How do we cater for a customer invoice early payment discount?

> 

> I see that Billing Terms does calculate invoice due date but

> calculation of early payment discount is not yet implemented.

> 

I don't think it is indeed.

> 

> 

> I thought it could possibly be done by doing a credit note and

> selecting the transfer account as Expenses:Discount but it is not

> possible to select an Expense account.

> 

That's indeed not possible.

 

(Serious IANAA warning for what follows...)

 

Is a customer payment discount really an expense ? I would consider it a
reduction of income (you receive less than you planned but you didn't spend
money on something for that). So I would think you could create a separate
income account for it and book applied customer discounts there. That
account would only decrease over time instead of increase like your regular
income accounts.

 

This you could do via a credit note if you wish. However again as I
understand it, a customer discount is a payment condition on the original
invoice. So a credit note is not really the proper counter for it (at least
it's not in my jurisdiction).

 

Most other accounting programs I have used deal with this when processing
the payments:

The payment of the reduced amount would go to the bank account and the
remainder would be booked as a negative income to balance the invoice total.

 

Unfortunately this is not possible either in GnuCash by using the Process
Payment window. So I suppose the way to deal with this is to

1. Pay the invoice in full

2. Manually edit the payment transaction (ugh) and split the payment into
the reduce payment and a compensating split in some income account.

 

My 2c.

 

Regards,

 

Geert

 

Hi Geert,

 

Thanks for the suggestion and the link to your very helpful Correcting
Business Transaction Mistakes wiki page.

 

I'm not an accountant either and it is many years since I've had to think
about AR or AP.

I pulled out an old accounting manual I still have from an accounting course
I did at tech and it doesn't even mention discount allowed for invoices paid
early, but I used to support an ERP system where this was common.

 

Making the discount allowed an Income account (with typically a debit
balance) makes sense and does allow a credit note to be done using the
business features, to create a transaction:

Accounts Receivable: Credit

Sales Discount Allowed: Debit

which is basically what is required, but as you say, it is not really a
credit note.

 

If tax is involved it becomes more complicated.

 

Would doing a manual transaction (not using the Business Features - usually
strongly discouraged), on an AR or AP account, cause problems with other
transactions in future?

 

I'd really appreciate input from anybody who does give discount for invoices
paid early, on how they do it?

 

Maybe, say due to low interest rates or tax laws, it is not something that
is done these days. I guess as no-one else responded, it is not something
done by GnuCash users. Maybe it is only done by larger businesses than GC
caters for.

 

So new users don't waste time, I'd like to say in the documentation, either:

Do it like this (some possible way(s).) if you must (and it is OK with local
authorities)

Or

Do not do it, it is not supported and will not work.

 

Or should I just say: It is not supported and will probably cause problems.

 

What do you think?

 

The wiki FAQ says:


Q: Why doesn't the discount from the billing terms show up when I pay an
invoice?[edit
<http://wiki.gnucash.org/wiki/index.php?title=FAQ&action=edit&section=26> ]


A: Billing terms is only partially supported. The date due works but
discounts don't. 

 

I intend to include in the Billing Terms documentation something along the
lines of:

 

Some fields in the Billing Terms Editor have been included to allow possible
future functionality for Billing Terms to be used to automatically calculate
discount for early invoice payment, but this has yet to be implemented.

 

Regards,

 

Chris Good

-------------- next part --------------
A non-text attachment was scrubbed...
Name: smime.p7s
Type: application/pkcs7-signature
Size: 4821 bytes
Desc: not available
URL: <http://lists.gnucash.org/pipermail/gnucash-user/attachments/20150905/bfceeb69/attachment.p7s>