Supplier pay on time discounts


A number of my suppliers offer pay on time discounts, which means they invoice the entire amount, and if I pay within the time period I pay only 95% of the invoice.

For example I receive an invoice dated 15th November for $100.

I then pay the invoice on the 3rd December, but only pay $95.

I don’t always get the discount, only when I pay the invoice within a set time period.

What is the best way of representing this so it covers the initial invoiced amount?


You can make an income account and call it “income from discounts” then when you pay for the invoice with a discount you only enter the amount you payed. to remove the remaining balance from your accounts payable, you can credit the “income from discounts” account and and debit the invoice.


I tried that thanks, but then the discount shows up as income on a profit and loss statement which is a problem as it is not really income, ie it is not something I am being paid. It also does not remove the balance owing from that particular invoice as it can only be done through a journal entry, not a “spend money” entry.

I am sure there must be an easy way to do this, I just can’t think of what it is :slight_smile:


Since you are not paying for the purchase immediately (as you would if you bought office supplies for cash at the store), you should be entering the transaction as a purchase invoice. It will be carried under accounts payable (a liability) until paid. If the terms from your supplier allow a discount for prompt payment, you can edit the purchase invoice at time of payment by adding a line. Allocate the discount to the same account you previously used for the specific purchase. (You might have several line items on the purchase invoice allocated to different accounts.) Be sure to enter the discount as a negative number so it offsets the original purchase liability. This way, you have a record of both the originally invoiced amount and the discount. The appropriate expense account will be adjusted for the discount, and your reduced payment against that invoice will still clear it.


I don’t really like idea of editing purchase invoice to include discount since it’s changing balances of accounts retrospectively.

The correct workflow should be that supplier should be actually issuing you a credit note for early settlement discount. You would enter this credit note as debit note under Debit notes tab.

Even if supplier doesn’t issue a credit note, I think the best workflow would be to copy purchase invoice into debit note, then decrease amounts on line items by 95% (you can do it by entering 95% discount on each line item). The date on debit note should be the same as the date when you made a payment to supplier.


From a rigorous accounting viewpoint, Lubos is correct. I had not thought about the problem of having the discount show on the same date as the original purchase invoice. My concern was to have a record of both the original invoice amount and the discount amount. Of course, all this discussion assumes you are accounting on an accrual basis, not a cash basis.


That’s a good point. If you don’t care about reports on accrual-basis, then it’s OK to adjust amounts on purchase invoice at the time of payment as until invoice was actually paid, it had no effect on cash-basis reports anyway.