Early Payment Discount

[iwells]

Hi,

I have a question on early payments discounts. What I'm looking to do is create an early payment discount that is recognized at the time the service is provided to the customer. For example:

DR AR
CR Revenue
CR Discounts Offered

If they don't pay:

DR Discounts Offered
CR Revenue

If they do pay:

DR Discounts Offered
CR AR

I'm told (I didn't confirm but this person knows Accpac well) that Accpac only records the discount at the time they pay to receive it. The issue here is this not liability to net with AR on the balance sheet. This is common practice in the US and I've seen it for years in other industries so I think there has to be a way to do it in Accpac.

Suggestions?

 

[ettienne]

No way, and it's not common practise in the USA or anywhere else.

 

[iwells]

It certainly is you just may not have seen it before. Extremely common in the utility industry as it has a significant impact on the financial statements. I worked with at least 25 utilities in many different states that did this ... please try to keep an open mind.

 

[Jay Converse]

There is no way in Accpac, you'll have to do your own programming.

 

[iwells]

What I'd considered doing was creating a distribution account (auto allocation account) and have X% going to AR and X-Y% go to the discount account. Then I'd set up an account set to have the Receipts Discounts go to the discount account or something similar ... I think that will get me to where I need to go from an accounting perspective.

 

[ettienne]

You mean X% going to Revenue and X-Y% go to the discount account. How will you deal with the discounts that are not taken?

 

[iwells]

Yea I said AR, but meant Revenue.

I'll create an SSRS report for invoices not paid in full within the discount period and they'll need to do a manual adjustment for lost discounts.

I know this method raises eyebrows (it did within our organization), but in terms of being conservative with your financial statements you need to accurately represent your AR and Revenue. In the past I've worked with organizations where the early payment discount was 7% of their bill and not having an exact reflection what discounts were pending would not be acceptable especially when you consider that it applied 75% of their customer base. Very important when dealing with publicly traded entities.

 

[ettienne]

A better option would be to accrue for possible discounts at month end, with an auto reverse JE. That way the accrual is automatically reversed and only actual discounts taken are left.

 

[iwells]

Yea I like that option the only thing is it wouldn't reflected on any statements or reports used during the month. That's likely going to have to be understood by users I think.

 

[ettienne]

AR statements and reports? You can pull the discount amount from the tables and include it on the reports - if they aren't there already. For example AROBL.AMTDISCHC has the discount amount on posted invoices.