Information about handling of payment discounts and payment tolerances in Microsoft Dynamics NAV

Payment discount is only considered when the applying entry closes an invoice

When the applying entry closes an invoice in Microsoft Dynamics NAV, Microsoft Dynamics NAV only considers payment discount. Closing the invoice can be done by a complete payment or a partial payment. However, the invoice has to be closed after the application. When there is a remaining amount, and even if this is only one cent, Microsoft Dynamics NAV does not take the payment discount into consideration.

An example

Here is an example for the scenario that payment discount is only considered when the applying entry closes an invoice:

1.  Open a Microsoft Dynamics NAV W1 database.
2. Post an invoice for customer 60000 by using Payment Terms Code 1M (8D) and Amount Incl. VAT of 1000 GBP.
   
3. Post a payment within the payment discount period by using an amount 979,99 GBP.
   

In this example, if you want to apply those entries, the following happens within Microsoft Dynamics NAV:

The invoice amount (1.000 GBP) less the payment discount (20 GBP) leads to a payment amount within the payment discount period of 980 GBP. The payment that is posted in the example of 979,99 GBP does not cover this invoice less payment discount amount fully. There would be a remaining amount of 0,01 GBP. Because of the design of Microsoft Dynamics NAV, the payment discount amount will not be granted, because the invoice will not be closed by the application. Therefore the invoice will have a remaining amount of 20,01 GBP after you post the application.

In case that you are working with payment tolerance in Microsoft Dynamic NAV, you have a chance to influence whether the invoice should stay open with a remaining amount or not. If you have set up a payment tolerance in the database and you have also set up the payment tolerance warning, you can either accept this 0,01 GBP as payment tolerance or leave this as remaining amount. If you decide to leave this as remaining amount, the invoice will not be closed fully, which means that Microsoft Dynamics NAV will not grant the payment discount, and the invoice will have a remaining amount in total of 20,01 GBP.

If you accept the amount of 0,01 GBP as payment tolerance, both entries will be closed and 20 GBP will be posted as payment discount and 0,01 GBP will be posted as payment tolerance.

Payment discount is always considered when the payment is within the payment discount period

Additionally, when a document such as an invoice is posted with payment discount possible, Microsoft Dynamics NAV always assumes that this payment discount is granted when a payment is fully applied to this invoice within the payment discount period. If you receive a payment for an invoice that is within the payment discount period, but the payment covers the full amount of the invoice, Microsoft Dynamics NAV will leave a remaining amount on the payment with the amount of the payment tolerance. Microsoft Dynamics NAV assumes that payment discount is always considered when the payment is within the payment discount period.

An example

Here is an example for the scenario that payment discount is always considered within the payment discount period:

1.  Open a Microsoft Dynamics NAV W1 database. 
2. Post an invoice for customer 60000 by using Payment Terms Code 1M (8D) and Amount incl. VAT 1.000 GBP.
   
3. Post a payment within the payment discount period by using an amount 1.000 GBP.
   

If you now apply the payment to the invoice within the payment discount period, the invoice will be closed and the payment will have a remaining amount of 20 GBP.

The reason for the behavior

The application is posted within the payment discount period. Microsoft Dynamics NAV assumes that payment discount is granted. Therefore, only amount 980 GBP is applied to the invoice (full amount 1.000 GBP less the discount amount 20BGP) and the invoice is closed. The remaining 20 GBP will stay on the payment.

Workaround

To work around this behavior, you can manually change the amount of the Remaining Pmt. Disc. Possible field of the invoice to 0.


You can do this in the Customer Ledger Entry dialog box or in the Apply Customer Entries dialog box. To edit the Remaining Pmt. Disc. Possible field, you can press F2.

Payment discount amount is not calculated automatically when you apply entries within the payment discount tolerance period

The payment discount tolerance feature lets you grant a payment discount after the payment discount date has passed. However, the payment discount amount is not calculated automatically when you apply entries within the payment discount tolerance period. It is only considered when the reduced amount is manually written into a journal. When you work with the applying functionality, the automatically suggested amount that you have will be the full amount.

This is the same on the vendor side as on the customer side.

Example 1

Here is an example for the scenario where payment discount tolerance is included:

1.  Open a Microsoft Dynamics NAV W1 database.
2. Post an invoice for customer 60000 by using Payment Terms Code 1M (8D) and Amount incl. VAT 1000 GBP.
   
3. Create a new entry in the Cash Receipt Journal dialog box for customer 60000 by using a posting date that is within the payment discount tolerance period. Then, leave the amount empty.
4. Open the Apply Customer Entries dialog box. To open this dialog box, click Functions, and then click Apply Entries.
   
5. Set the "Applies-to ID" to the invoice number from step 2.
   
6. Click OK.
   

In this example, the full amount of 1000 GBP will be suggested in the cash receipt journal.

Example 2

Here is an alternative example for the scenario where payment discount tolerance is included:

1.  Open a Microsoft Dynamics NAV W1 database.
2. Post an invoice for customer 60000 by using Payment Terms Code 1M (8D) and Amount incl. VAT 1000 GBP.
   
3. Create a new entry in the Cash Receipt Journal dialog box for customer 60000 by using a posting date that is within the payment discount tolerance period and amount 980 GBP.
   
4. Open the Apply Customer Entries dialog box. To open this dialog box, click Functions, and then click Apply Entries.
   
5. Set the "Applies-to ID" to the invoice number from step 2.
   
6. Click OK.
   

What happens

If the Payment Discount Tolerance Warning check box is selected in the General Ledger Setup dialog box, the warning will now appear, and you are asked whether you want to accept the payment discount within the tolerance period. Dependent on the decision, the invoice will be either closed after the application, or the invoice will be left open.

If the Payment Discount Tolerance Warning check box is not selected in the General Ledger Setup dialog box, Microsoft Dynamics NAV assumes that the payment discount is accepted within the tolerance period and both entries will be closed after you post the application.

More Information about the vendor side

For the vendor side, there is the "Suggest Vendor Payments" report (393). To run this batch job, open the Payment Journal dialog box, click Payments, and then click Suggest Vendor Payments. This batch job processes open vendor ledger entries and creates a payment suggestion as lines in a payment journal based on the vendor ledger entries.

This report also does not consider the payment discount amount within the discount tolerance.

You can include vendor ledger entries for which you can receive a payment discount. In order to obtain these entries, you have to select Find Payment Discounts check box on the Options tab of the request form within the Suggest Vendor Payments dialog box. However, if you do not select this check box, only entries that are within the normal payment discount period are suggested. Entries that are no longer within the payment discount period but still within the payment discount tolerance will not be suggested.

In order to also consider the payment discount amounts within the tolerance period, you have to manually change the suggested payments entries in the payment journal.