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.

This image shows the available values in the Payment Terms Code field in the Payments tab. After creating your record, simply click the relevant record to attach it to the Customer Card.

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.

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:

Payment Terms records have several key fields against them. In this image, you can see the Due Date Calculation field, which typically match what you set the No. value as. As you can see, there are discount related fields. By paying invoices quickly, users can issue customers discounts.

Below is a screenshot of my Sales Invoice record I am exemplifying this functionality with:

This image merely displays the invoice details which I am going to apply a discount for. I am using Item: X, Quantity: 10. The Line Amount Excl. VAT is £200.

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:

This image shows the Apply Customer Entries subpage which is reached from the Cash Receipt Journal. Stating when the invoice is paid is key to determining whether a payment terms discount is applicable.

The Appln. Remaining Amount value shown is £240, with a Remaining Pmt. Disc. Possible of £60. This means the total, after applying the discount, is £180.

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 applying the relevant entry on the previous subpage, the Cash Receipt Journal has a populated line. As indicated by the Amount value, it's clear the discount has been applied. The Appln. Remaining Amount value shown on the previous screen was £240, with a Remaining Pmt. Disc. Possible of £60. This means the total, after applying the discount, is £180 which we can see on the line.

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:

On a Customer Card, you can click into the value on the Balance (LCY) field to access the Customer Ledger Entries, filtered to the particular Customer record, to see what makes up that 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:

As mentioned in the previous alt text, by clicking into the Balance (LCY) value, it automatically filters the Customer Ledger Entries page by the Customer No.

In this image, you can also see I am applying a filter to amend the 'Open' field to a value of 'No'.

The top two corresponding entries are below:

After filtering the Customer Ledger Entries appropriately, I can see the Payment and the Invoice documents. As you can see, there Original Amount value is different on the two lines, showing that the payment terms discount has been successfully applied.

Finally navigating through to the Applied Entries on the invoice, we can see the payment relates to it:

This image shows the Applied Customer Entries, showing that the the two lines in the previous image are linked.

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:

This image shows the function of the Calc. Pmt. Disc. on Cr. Memos field. I added this as a screenshot as it's not clear from the name what the field does. What this field does is allows users to add payment terms discounts to credit memos.

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:

This image shows the effect of enabling the Calc. Pmt. Disc. on Cr. Memos field. As you can see, there are two records on the Customer Ledger Entries screen, both with an Original Amount value of £6000. However, the earlier one has the field enabled, meaning as the refund was paid within the boundaries set on the payment terms discount a 25% discount is applied, meaning the customer will get back less than what they originally paid.

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’:

On the Cash Receipt Journals, we need to create the Refund against the entry. Once we've done this, we can see the effect of the Calc. Pmt. on Cr. Memos action.

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.

Closing remarks

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!

A Guide to Payment Terms in Business Central