Lesson 3 of 6
Payment terms and discounts
7 min
Payment terms decide when an invoice should be paid and how much discount is available for paying early. They are stored under a terms of payment key, defaulted from the supplier master (the company code data for finance invoices, the purchasing organization data for purchase orders) and copied to each invoice, where the user can change them. Getting terms right matters twice: for cash, because paying too early wastes money, and for supplier relationships, because paying late costs goodwill and sometimes penalties.
The baseline date
Every calculation starts at the baseline date. The terms key decides how the system proposes it: from the document date (the invoice date), the posting date or the entry date, or no default so the user must enter it. The terms can also shift the baseline date, for example to a fixed day of the month or by adding months. Most companies use the invoice date, because that is what the supplier's terms refer to.
Discount periods and net due date
A terms key can hold up to three periods: two cash discount periods, each with a number of days and a percentage, and a final net period. "2/10 net 30" means 2% discount if paid within 10 days of the baseline date, otherwise the full amount within 30 days. The net due date is the baseline date plus the net days. After it the item is overdue.
- Mar 3Baseline dateLakeside invoice dated March 3 for 10,000 USD, terms 2/10 net 30
- Mar 3–13Discount windowPay 9,800 USD and take 200 USD cash discount
- Mar 14–Apr 2Net windowPay the full 10,000 USD, no discount
- Apr 2Net due dateLast day to pay on time
- Apr 3 onwardOverdueItem shows as overdue in line items and aging
Notice the arithmetic: 10 days after March 3 is March 13, and 30 days after is April 2. Testers should do this calculation by hand for every terms key in scope, then compare with the due date and discount columns in Manage Supplier Line Items. Off-by-one mistakes in expectations are common; mistakes in the configuration are rarer but far more costly.
Day limits and installments
Some terms depend on when in the month the invoice arrives. A day limit lets one terms key hold several versions: for example, invoices dated up to the 15th are due at the end of the following month, and invoices dated after the 15th are due on the 15th of the month after that. Installment terms split one invoice into several due amounts, each with its own percentage and terms; the percentages must add up to 100%.
| Terms pattern | Example | What to test |
|---|---|---|
| Simple net | Net 30 | Due date = baseline + 30 |
| Discount then net | 2/10 net 30 | Discount on day 10, none on day 11, due date on day 30 |
| Day limit | Up to the 15th: end of next month; after the 15th: 15th of the month after | Invoices dated the 15th and the 16th |
| Fixed day | Due on the 10th of the next month | Month ends, February, year end |
| Installments | 50% at 30 days, 50% at 60 days | Two open items, percentages total 100% |
How the payment run uses the terms
The automatic payment run does not simply pay everything that is due. For each open item it compares the dates with the run's posting date and the next payment date entered in the parameters. If waiting until the next run would lose a cash discount or make the item overdue, it pays now, and it takes the best discount still available. If the item can safely wait, it is left for a later run. That is why the next payment date is one of the most important parameters, and why entering it wrongly leads to early or late payments.
- Is a cash discount still available on the posting date?Yes → would it still be available at the next payment date? If not, pay now with discount · No → continue
- Would the item be overdue by the next payment date?Yes → pay now at the net amount · No → leave it for a later run
- Is the item blocked or missing payment data?Yes → exception, not paid · No → proposed for payment
What would you do?
Contoso's controller asks why an invoice with terms 2/10 net 30 was paid at full price, even though the payment run was on day 8. What is the most likely cause?
- Terms of payment set the baseline date rule, up to two discount periods and the net period.
- Net due date = baseline date + net days; calculate expected dates by hand for tests.
- Day limits and installments add versions and splits; test the boundary days.
- The payment run pays now if waiting until the next payment date would lose a discount or make the item overdue.
Check your understanding · not graded
Lesson check
1. With terms 2/10 net 30 and baseline date March 3, what is the net due date?
2. How many discount periods can a terms of payment key define before the net period?
3. What lets one terms key behave differently for invoices dated before and after the 15th?
4. Which payment run parameter decides whether an item can wait for a later run?