How to Apply Early Payment Discounts in QuickBooks (Online & Desktop)

When your cash flow is enough, take benefit of vendor discounts with quick payment. The cost of doing business when […]

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When your cash flow is enough, take benefit of vendor discounts with quick payment. The cost of doing business when a particular discount amount is bigger than the particular finance charges, comprising the loan interest.

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Integrating early payment discounts in Intuit QuickBooks Desktop and QuickBooks Online is hassle-free. Coding bill payment discounts in the right manner is a segment of the accounting process. In this article, we will provide a detailed overview of how it functions.

What is the Definition of Early Payment Discounts?

Suppliers provide an early payment discount to clients when they wish to gather their accounts receivable fast. Other identities for such kind of discount are prompt payment discount or a cash discount.

Early payment norms are very brief compared to the number of days present in a normal payment cycle. As a client, your company takes the decision to pay a particular bill on the due date or after the due date or take an early payment discount. Any vendor invoice or purchase order must always display the payment terms.

It is considered ideal when both customers and vendors have a particular company policy to make standards for receiving and providing early payment discounts. This comprises acknowledgeable payment terms. In case a standard policy is present, then the accounts payable department can easily process such discounts via automated software.

What are the Benefits of Processing an Early Discount?

Vendors who wish to trim down their quote to cash cycle provide a discount percentage that will provide incentives for swift payment. The small business vendors who get payments quicker can perform the following things:

• Pay the Suppliers
• Smoothen Supplier Relationships
• Improved Balance Cash outflow and Inflow
• Better Return on Investment
• Conduct and Streamline Business

In case you do not accept a discount, customers are quite likely not to pay the bill for a good amount of time past the due date.

Apart from quick payment discounts, vendors provide sales discounts. Such discounts are called Quantity Discounts or Volume discounts and these discounts are for bigger purchases.

Customers can attempt to negotiate with every supplier for improved discount terms in all the categories.

How to Calculate an Early Payment Discount?

Every vendor invoice comprises the payment terms. This is to show any kind of early payment discounts. These are usually given as a percentage of the entire invoice amount prior to any sales tax.

Normally, A discount payment term provided by vendors is 2/10 Net 30. It states that the vendor is providing a discount of 2% for a particular customer payment within 10 days of the particular invoice date. In case the customer rejects the discount, they are requested to clear the entire amount of the Invoice in 30 days.


Terms: 2/10 Net 30

Subtotal Invoice Amount $2000
Sales Tax at 8% 160
Total Invoice Amount $2,160
Calculated Amount of the Discount @2% 40
Discounted Invoice Balance Due,
Including Sales Tax $2,120

Check your state regulations and CPA and find out if you are required to pay sales taxes on the particular inventory items brought for resale. In QuickBooks, vendor invoice subtotal is prior to any sales tax.

Request your CPA for the right discount account coding for your particular business if you’re not sure. For instance, QuickBooks may code automatically for a customer’s early payment discount in the form of a credit to new income. Your accountant may wonder that early discounts on inventory purchases must be credited to the purchases account rather than cut down the cost of goods sold.

Bookkeeping for all early payment discounts is managed in a different way in QuickBooks Desktop and QuickBooks Online. In today’s article, We will learn how to apply a discount to a particular bill in QuickBooks.

Early Payment Discounts for QuickBooks Desktop

QuickBooks Desktop accounting software comprises QuickBooks Premier, Pro, and Enterprise Products. It is on-premises software. QuickBooks users use remote hosting for an extra per-user monthly payment.

How to Apply Early Payment Discount on a Vendor Bill

Intuit QuickBooks offers a detailed procedure and guidelines for the client to add a discount on a particular vendor bill when they make payment for the invoice with QuickBooks Desktop. Here are the steps to make an early payment discount to a vendor bill:

  • Navigate to the Vendors menu.
  • Choose Pay Bills.
  • Choose the Vendor bill.
  • Press on the option Set Discount.
    • Now Add the Discount Amount.
  • Choose the Discount Account. For this, you need to press Add New in case the income account is not listed yet.
  • Press Done.
  • Press Pay Selected Bills.

In QuickBooks Desktop, vendors that acknowledge payment are required to register the discount post early payment of the customer.

How to Add a Payment from a Specific Customer?

QuickBooks helps you understand how to register an invoice payment from a particular client in QuickBooks Desktop, comprising choosing Discounts and Credits to add a discount.

  • On the home page of QuickBooks, Choose the Receive Payment option. You can also do it from the Customers menu page.
  • In the drop-down for Received From, choose the name of the customer.
  • Add the Amount Received.
  • Ensure the date is right, then select the payment process.
  • Choose the invoice or the invoices you wish to pay.
  • To include a Credit or Discount, choose the option, Discounts and Credits.
  • Choose Save and Close.

Early Payment Discounts for QuickBooks Online

Early payment discounts are registered by both:

  • A Vendor Accepting Payments via QuickBooks Online post the Client makes their Bill Payments.
  • A Customer Conducting Invoice Payments post the Receipt of Services and Goods.

How to Enter Your Bills for Early Payment Discounts?

First, you need to get the vendor bill in the QuickBooks Online system either manually entering it or automatically.
When you get a bill from a particular vendor, you can register it and clear it when it is due.

  • Choose + New
  • Choose Bill.
  • From the drop-down for Vendor, Choose a Vendor.
  • From the drop-down for Terms, Choose your bill term preferred. These are the terms displayed when the vendor wants payment.
  • Complete the fields mentioned below:
    • Due Date: When your vendor payment should be cleared.
    • Bill Date: When the bill was prepared, added, or acquired.
    • Bill No: What reference or number separates the bill from the same particular vendor?
  • From the drop-down menu for Location, choose a location to allocate the invoice to, be it for a business category or a particular work. It is important to note that you should turn on the Location tracking to witness this field.
  • Add the other required details in Item details or category and then choose Save and Close.

Note: In case you are accepting an early payment discount, you need to clear the invoice prior to the due date. Take note of the drop-down lists comprising both the Term list and Vendor list. This provides you the option of payment terms and vendors that you have already added to the QuickBooks accounting software.

QuickBooks Online suggests you to taking the additional step of preparing a vendor credit for all the vendor discount types, comprising early payment. The vendor invoice comprises the discount in Terms.

How to Record an Early Payment Discount?

As a substitute to create a vendor credit, a few of the QuickBooks Online users like to miss this step. Rather, they include a new line item. After that, they add the early payment discount as a type of negative amount on the particular vendor bill. After that, they code it to the other income account in the form of credit.

In order to register a QuickBooks Online early payment discount, start by adding and creating the vendor credit.

Steps to Create a Vendor Credit:

  • Choose + New
  • Now choose Receive Vendor Credit or Vendor Credit.
  • In the dropdown for Vendor, Choose your Vendor.
  • Based on your record purchases with this vendor, Add the item Details or Category Details. Generally, this is the product, category, or service you are receiving a credit for.
  • Choose Save and Close.

Now, Let’s learn how to apply Vendor Discounts and Credits to a particular bill.

Steps to Apply Vendor Credits to a Bill

It is possible to apply a vendor credit towards any future or open bill. When you are all set to use the credit, this is how you can do it:

  • Choose + New.
  • Choose Pay Bill or Pay Bills.
  • Choose a bill for your particular vendor from the given list. You will witness the available credit with this particular vendor in the field of Credit Applied.
  • Finish the rest of the fields like generally you do.

Note: It is possible to apply for vendor credits while utilizing Online Bill Pay. All the vendor credits prepared within the Incoming Bills page and QuickBooks are entitled to be utilized toward bills on the Pay Bills Online page.

Clients utilizing QuickBooks Payments administered by Intuit can make online bill payments via several payment procedures like online bill payment, ACH Bank Transfer, eCheck, etc.

How to Receive Vendor Invoices Electronically?

Rather than adding vendor bills manually into the system, it is possible to save huge amounts of time when you get vendor invoices electronically.

A universal mass payments and payables automation software add-on is possible via the QuickBooks app, but it has a monthly subscription. The fully integrated third-party app offers accounts cost savings and payable time.

Not to mention, It includes self-service vendor onboarding, an extensive selection of global currencies, and a plethora of payment methods. Not only does it meet customer preference, but it also offers robust internal controls to avoid any kind of fake payments.

When Shall You Record Early Payment Discounts?

A vendor must in the beginning record their particular invoice in QuickBooks Online, the full amount prior to the discount. This is due to the fact that the customer has an option of accepting or not accepting the payment discount. The vendor is not aware of which outcome will take place when invoicing the particular customer along with open invoices are not paid yet.

From the vendor side, perform the steps below:

Step 1: Choose + New in QuickBooks Online.
Step 2: Locate the Customers section and press the Invoice link.
Step 3: From the Vendor side, choose + New in QuickBooks Online. Now locate the Customer section and press the link for Invoice.

When registering the customer invoice, the vendor selects the Terms offered and the customer, like 2% 10 Net 30, from the given Terms list drop-down. It is a particular text field. The vendor has not add the early payment discount percent in the given bill.

Rather, the vendor adds the needed information fields, comprising bill number, invoice date, quantity, price, and invoice line items. Then click Save and close the particular customer invoice. In this particular step, the invoice is added to the invoice in the section for open invoices.

Once the customer payment is complete, in case it is in the discount date range, then the vendor opens the invoice again by hitting the Receive Payments window link present in the Customers section. Now click Filter to choose the customer name along with the invoice cleared by the customer.

Now, Press on the real invoice to view it. In case the customer has an early payment discount, add the discount percent in the form of a number minus the percent sign.

Note: Search for the box that has a drop-down menu option for Discount Percent which is above the Total amount line present on the invoice.

QuickBooks Online will determine and add the early payment discount in the form of a negative amount deducted from the total invoice amount. After that, It will calculate the total again. In the next step, QuickBooks Online registers automatically the discount amount in the form of debit in the particular account for Discounts given or Sales discounts and as a credit to the accounts receivable.

Sales discounts are a contra-revenue account. It provides offsets revenue rather than an expense account. Any kind of Deposit offered by the customer that is in the Deposit box will be deducted automatically from the Total in order to equal the Due Balance on the invoice. Now click the Save and Close button. Next, the new lower balance comes up in the Open Invoices report.

After that, the vendor returns to the Receive Payments screen to register the payment. The vendor selects the customer name and adds the payment date. Next, the vendor hits the box present on the left of the option Paid Invoice added in the Outstanding Transactions section on that same screen.

By pressing the box, a checkmark will come up. Now click the Save and Close button to get the payment from the particular customer in your QuickBooks Online.

Final Words

Comprehending how to make the most of your QuickBooks platform assists you in saving both time and money. It’s crucial to completely understand how to do it in your QuickBooks version. After the system is down, acquire as many discounts as possible in order to boost revenue and boost vendor relationships.

In this article, we have explained in detail how to apply early payment discounts in both QuickBooks Online and QuickBooks Desktop. We have highlighted all the crucial aspects. Still, if you have any kind of doubts or queries. You can reach out to Dancing Numbers team.

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