In Business Central, users can set payment terms against customers. This allows you to specify when payments are due dates on sales records. In this post, we will try to cover all things payment terms; this includes the relevant setup for a Payment Terms record, discounts and reminder messages. We will finish off by explaining how you can apply payment terms discounts on credit memos.
Creating a payment terms record
To create a Payment Terms record, go to the Payment Terms page and create a new line. The Due Date Calculation field dictates how long each customer has to pay invoices. Note, the values here are configured by formula. If you wish for a payment term to be 90 days, don’t put ’90’. Instead, put ’90D’. For months, the value is ‘M’. If you were to go as far as years, the value is ‘Y’. Make sure your No. and Description fields correspond to the Due Date Calculation field.
Setting payment terms against a customer
Once you have created your payment terms record, you can set the value against a customer. To do so, in the Payments tab, input a value into the Payment Terms Code field.
Any payment terms set against the Customer Card itself. This will default the Due Date value on any outbound orders. However, whilst this will default the value, you can amend the Due Date on an individual order-by-order basis.
Payment terms discounts
You may have noticed on the Payment Terms page three fields:
- Discount Date Calculation
- Discount %
- Calc. Pmt. on Cr.
Payment terms discounts allows users to give customers discounts if they pay within a period based on how quickly they pay their invoice,
Discount Date Calculation
The Discount Date Calculation field determines the period of time the customers have to pay the invoice within, to receive the payment terms discount.
The Discount % field simply dictates the discount the customers get if they are to pay their invoice early. How early they have to pay is subject to the value you’ve input in the Discount Date Calculation field. To demonstrate this, I am going to use the highlighted record below:
Below is a screenshot of my Sales Invoice record I am exemplifying this functionality with:
The Posting Date value on the sales invoice I created is 11/10/22. After posting the Sales Invoice record, on a Cash Receipt Journal, lets apply the relevant entry:
The value is higher here, subject to VAT. With a total value of £240 and a 25% discount available, the total amount to pay by the customer is £180. After applying the entry, you can see the correct value pulling through:
After posting the Cash Receipt Journal, we can check whether this balance is fully paid. To do so, open the Customer Card and the FactBox by clicking the ‘i’ icon. Next, click the Balance (LCY) value:
By clicking this, you’ll open the Customer Ledger Entries page. This automatically will filter the records by the Customer No. you are on, as well as by only showing open entries. Now, for our purposes, this isn’t helpful as it won’t show the record we are searching for. Instead, change the Open filter value to No:
The top two corresponding entries are below:
Finally navigating through to the Applied Entries on the invoice, we can see the payment relates to it:
The Calc. Pmt. on Cr. Memos field
Moving onto the third field on the Payment Terms page I highlighted, this one’s name is a little cryptic. However, by hovering over the field, you’ll see what the field does:
As you can see from the tooltip, enabling this field establishes that users can discount sales credit memos when the relevant payment terms value is applied. So you are essentially discounting yourself the money you owe to customers if you pay within a certain period; a slightly unusual concept, it must be said. To demonstrate this in action, I will enable this field and create a credit memo. I will use new data here, to avoid any confusion.
Demonstrating the Calc. Pmt. Disc. on Cr. Memos field
I have created two Sales Credit Memo records. Both are for Customer 50000, for the same item, quantity and value. The Calc. Pmt. Disc. on Cr. Memos field is enabled prior to making and posting the first Sales Credit Memo record. The second Sales Credit Memo record was created after disabling the field and posting the first record. As you can see below, the bottom line has a possible 25% discount if paid within 10 days. This was the record with Calc. Pmt. Disc. on Cr. Memos enabled. The top line was the record which didn’t have the field enabled. See below:
The next step is to return to the Cash Receipt Journals page. Here, amend the Document Type field value to ‘Refund’. Make sure the Account Type is set to Customer and enter the relevant Customer No. value in the Account No. field. The next step is to click ‘Process’ and ‘Apply Entries’:
Like we did previously, select the relevant entry to apply.
Things to note when discounting refunds
What’s interesting is this functionality is not dependant on the original sale. There may have been no payment terms discount applied to that original payment. What I mean is, if there was only a discount applied to payments made within 10 days, the customer paying on the 11th wouldn’t receive that discount. Irrespective of this, if the vendor refunds them within that discount period, they will pay back less than what they originally received. It’s a way to reduce the amount you have to refund. It might be unusual to utilise this functionality but the system gives you the option to be flexible.
One thing that’s worth stressing is that the discount will only be applied if the Calc. Pmt. on Cr. Memos field is enabled when you post the credit memo. If you post the credit memo and then untick the field, it will still apply the discount as it’s working from what the value was at the point of posting. The opposite applies too, so if you post a Sales Credit Memo record and subsequently enable this function, you won’t receive a discount on the subsequent refund.
Stay tuned for our next post which will follow suit, covering how to issue reminders to late paying customers! If you have any questions or comments, make sure to contact us. To keep up to date with when we post, follow us on LinkedIn.
Also, as it’s our last post prior to the festive break, have a happy festive break. For those who don’t celebrate Christmas, have a good new year. Hopefully we’ll see you again in January!