Terms
The meaning of the two words: Discount and Terms is very similar. Both of them are used for determining a rebate.
Discount, called interchangeably an allowance, is the reduction of price that is granted to a customer for having fulfilled certain conditions during or after sales transaction. The reason for granting a discount during sales transaction can be both a generally accepted practice (discounts are granted on purchase of specified items before or after the season, on purchase of larger quantity, e.g. wagonload or carload supplies are the equivalent of possible damages that occur during transport) and a privilege used by certain customers a seller cares about for different reasons (e.g. for prestige reasons, reference and opinion reasons, for loyalty, for not making purchases from other vendors or manufacturers). Discounts, granted after the sales transaction, are most often the compensations for excessive wastage during transport or worse quality of the subject of delivery.
Terms, in turn, is a sort of equivalent for immediate or sometimes term payment, considering that the regular terms of payment anticipate certain time for taking receipt of the delivery upon which the payment should be made. During that period, the merchandise is financed by vendor, e.g. by bank credit which of course is an interest-bearing credit. Therefore, the merchandise price includes, at least theoretically, the bank interest cover that is paid by the vendor for the time during which the customer legally uses the trade credit granted to him/her by the vendor. If the payment is then made earlier, it is reasonable to repay to the customer the equivalence of the interest included in the price, because this part of the credit had not been used.
Discount or terms granted to a customer decreases the vendor’s offer price, thus it decreases the tax base and the sales revenues at the same time.
Terms can be granted not only to the customers, that is on documents of release/expense type, but also on documents of receipt/revenue type – for early payment. Therefore, terms should be defined not only for payments of expense type but also for payments of revenue type.
To understand better how the terms functionality works in the system, look at the example below:
Example
An invoice, amounted to 1000 USD, is confirmed. In this example, there are 3 terms rates defined (in the system, n-terms rates can be defined).
1. TERMS1: 10%, 40
2. TERMS2: 20%, 20
3. TERMS3: 30%, 5
Which should be interpreted as follows:
Ref.1 If payment is made within 40 days, 10% reduction (discount) will be granted
Ref.2 If payment is made within 20 days, 20% reduction (discount) will be granted
Ref.3 If payment is made within 5 days, 30% reduction (discount) will be granted
Terms should be defined when agreeing or editing the payment. Terms changes the value of receivable or payable without changing the invoice value (unlike to e.g. customer discount granted on item which automatically changes the document value), because we never know whether the terms conditions will be fulfilled. Terms is calculated on a document’s total value. Because the document is posted independently, if terms is granted, this must be included in the accounting (also from the VAT point of view). Terms can be also defined for payment not associated with any document.
Note: Terms can be defined exclusively for an open payment.
The system allows for the modification, deletion or addition of terms to payment until the payment is completed. After the completion, the system blocks the modification of terms.
Note: Number of days is calculated from the date of payable or receivable (payment).
Terms is calculated when completing a payment, providing that the terms condition which states that the date of payment/receipt transaction is earlier or the same as the terms expiration date is fulfilled. Granted terms is registered in the system with terms transaction. The list of such transactions is available in the Finances menu under the button Terms. Terms is subject to posing. This way, the tax value and the value of revenue that is subject to taxation can be properly balanced on book accounts.
In case when payment is completed from a transaction which value is lower than the payment value and the terms is defined for that payment, the system checks if the terms value together with the value of the completing transaction covers entirely the payment value. If so, the terms is granted. Otherwise, when payment value is higher than the transaction value + terms value, the terms is not granted, even if it had been defined for the payment.
Terms transaction is registered on the list of terms transactions. The status of this transaction is: Paid and it is combined with payment. When removing the associated payment – when the combination between the transaction and the payment is removed – terms transaction is also deleted.
In the system, it is possible to define several terms for one payment. When defining the terms, the system checks whether the same or similar terms has not yet been granted. If so, the system displays the appropriate message and disenables granting of terms. The system checks the percentage value of the discount and the number of days. It verifies the entered number of days and then the discount percentage value. The system does not allow to define such two terms for one payment: 5%, 15 and 10%, 15.
When defining several terms for one payment, the value of discount is not summed up and only one of the terms is granted – the one that fulfills the condition. If at least two such terms: 5%, 15 and 10%, 30 are defined for one payment and the transaction date is included in the first range (by 15 days from the transaction date), then the first terms is granted only.
After granting the terms, that entry should be also corrected in VAT accounts. In Comarch ALTUM system, terms granted to SI or R is reflected in VAT purchase invoice (VPI) and PI – in VAT sales invoice (VSI). VAT and subtotal values are corrected by terms percentage value. If terms is 5%, total, subtotal and VAT values are decreased by that 5%. If there are several items with different VAT rates in a trade document, the values are corrected for each of them separately. It refers to a situation when payment is associated with a trade document.
Granted terms is registered in the system with Terms transaction. The form of terms is the same as that of cash or bank transaction. Terms transaction is not editable. A payment, displayed in the Payments tab, is the one that generated terms transaction during the completion of payment. Only permissions can be defined for terms transaction.
Characteristics of Terms transaction:
1. it is completed
2. it is combined with payment
3. it cannot exist itself, i.e. without being combined with any payment
4. it is generated as a result of completing the payment or transaction and it cannot be added manually
5. it cannot be deleted; it is deleted once the completed transaction is removed
6. it is posted
7. posted Terms transaction affects the trial balance
Figure 36 List of terms transactions.
All transactions of terms type described above are registered on the list of terms transactions (Finances -> Terms). The list of terms transactions is divided into the following columns:
Date – date of creating a transaction of terms type
Number – terms transaction number according to template: TER/year/number
Revenues – positive if terms was granted when completing a purchase invoice
Expenses – positive if terms was granted when completing a sales invoice
Currency – currency in which terms was granted
Below the list, there is a filter panel allowing for the selection of only those transactions of terms type which
have a specific number
are granted in given currency
are included in a specified range of revenue (expense) value
were created in a specified range of dates
Buttons available in the menu are the following:
[Preview] – allows to view the details of the selected transaction of terms type
[Refresh] – refreshes the list of terms transactions
[Close] – closes the list of terms transactions
The buttons used for posting of terms transactions are the following: [Post], [View Unposted Entries], [Manual Posting], [View Journal Entry].
Example
The payment of SI amounted to 350 USD that was issued and confirmed on 2007-11-13 is divided into 2 different values: 100 USD and 250 USD. Each of these payments is completed separately. In the example below the first payment (100 USD) with an assigned terms is being completed.
Payment value = 100 USD with date of issue: 2007-11-13
Terms 10%, 15
Payment delay 30 (from payment form)
Planned due date: 2007-12-13
Terms expiration date: 2007-11-28
I) Transaction = 100 USD with date to 2007-11-28
Before completion:
Payment Transaction
Value = 100 USD Value = 100 USD
Paid = 0 USD Paid = 0 USD
Terms = 0 USD To be paid = 100 USD
To be paid = 100 USD
Completing of transaction:
Payment Transaction
Value = 100 USD Value = 100 USD
Paid = 100 USD Paid = 90 USD
Terms = 10 USD To be paid = 10 USD
To be paid = 0 USD
Terms transaction, amounted to 10 USD, is created
II) Transaction = 100 USD with date after 2007-11-28
Before completion:
Payment Transaction
Value = 100 USD Value = 100 USD
Paid = 0 USD Paid = 0 USD
Terms = 0 USD To be paid = 100 USD
To be paid = 100 USD
Completing of transaction:
Payment Transaction
Value = 100 USD Value = 100 USD
Paid = 100 USD Paid = 100 USD
Terms = 0 USD To be paid = 0 USD
To be paid = 0 USD
Terms transaction is not created
