Handling cash discounts for overpayments

This article provides scenarios that show how a payment is handled when the customer takes a cash discount but also overpays.

An invoice is considered overpaid when the payment amount is more than the invoice amount minus the cash discount. To specify how an obtainable cash discount difference is handled when an invoice is overpaid, use the Cash discount administration and Maximum overpayment or underpayment fields on the Accounts receivable parameters page. In the following example, the customer has overpaid the invoice by 0.50.

Invoice total Cash discount available Amount to be paid, which includes the cash discount Amount the customer actually pays
105.00 10.50 94.50 95.00

Cash discount administration = Specific

When Specific is selected in the Cash discount administration field on the Accounts for automatic transactions page, the full cash discount is taken. The overpayment amount either is posted to a cash discount difference ledger account or remains a balance on the customer’s account. The behavior depends on whether the overpayment amount is between 0.00 and the amount that is entered in the Maximum overpayment or underpayment field, or whether the overpayment amount is more than the Maximum overpayment or underpayment amount.

Scenario 1

In this scenario, the overpayment amount is between 0.00 and the maximum overpayment or underpayment. An invoice for 105.00 is entered, and a cash discount is available if the invoice is paid within seven days.

Invoice total Cash discount available Amount to be paid, which includes the cash discount
105.00 10.50 94.50

The customer submits a payment for 95.00 within the cash discount period. The payment is settled against the invoice for 105.00. After the invoice and payment are settled, the following transactions are created for the customer in Accounts receivable.

Transaction Amount Balance
Invoice 105.00 0.00
Payment -95.00 0.00
Cash discount -10.50 0.00

The following accounting entries are generated for the payment and the settlement. Payment

Account Debit amount Credit amount
Cash 95.00
Accounts receivable 95.00

Settlement

Account Debit amount Credit amount
Cash discount (the Main account for customer discounts field on the Cash discounts page) 10.50
Accounts receivable 10.50
Customer cash discount (the Customer cash discount field on the Account for automatic transactions page) 0.50
Accounts receivable 0.50

Scenario 2

In this scenario, the overpayment amount exceeds the maximum overpayment or underpayment amount. An invoice for 105.00 is entered, and a cash discount is available if the invoice is paid within seven days.

Invoice total Cash discount available Amount to be paid, which includes the cash discount
105.00 10.50 94.50

The customer submits a payment for 95.00 within the cash discount period. The payment is settled against the invoice for 105.00. After the invoice and payment are settled, the following transactions are created for the customer in Accounts receivable.

Transaction Amount Balance
Invoice 105.00 0.00
Payment -95.00 -0.50
Cash discount -10.50 0.00

The overpayment amount of 0.50 will remain as an open balance on the payment and can be settled against another invoice. The following accounting entries are generated for the payment and the settlement. Payment

Account Debit amount Credit amount
Cash 95.00
Accounts receivable 95.00

Settlement

Account Debit amount Credit amount
Cash discount (the Main account for customer discounts field on the Cash discounts page) 10.50
Accounts receivable 10.50

Cash discount administration = Unspecific

When Unspecific is selected in the Cash discount administration field on the Accounts for automatic transactions page, the cash discount amount is reduced by the overpayment amount. This behavior always applies, regardless of whether the overpayment amount is over or under the amount that is entered in the Maximum overpayment or underpayment field.

Scenario 3

In this scenario, an invoice for 105.00 is entered, and a cash discount is available if the invoice is paid within seven days.

Invoice total Cash discount available Amount to be paid, which includes the cash discount
105.00 10.50 94.50

The customer submits a payment for 95.00 within the cash discount date. The payment is settled against the invoice for 105.00. After the invoice and payment are settled, the following transactions are created for the customer in Accounts receivable.

Transaction Amount Balance
Invoice 105.00 0.00
Payment -95.00 -0.00
Cash discount -10.00 0.00

The cash discount amount is reduced from 10.50 to 10.00. The payment and invoice are considered settled. Payment

Account Debit amount Credit amount
Cash 95.00
Accounts receivable 95.00

Settlement

Account Debit amount Credit amount
Cash discount (the Main account for customer discounts field on the Cash discounts page) 10.50
Accounts receivable 10.50