Understand Cash Discounts with Dynamics 365 Finance

Cash discounts function as incentives, encouraging vendors to settle their invoices ahead of schedule. By offering either a percentage reduction or a specific dollar reduction, businesses can entice vendors to pay more promptly.

Within the realm of Microsoft D365 Finance, cash discounts can be orchestrated and utilized across both Accounts Payable and Accounts Receivable. You have the flexibility to establish these discounts on either customer or vendor invoices, and if paid within the cash discount window, they’ll be applied automatically. This blog delves deeper into the nuances of cash discounts and their application in Dynamics 365 Finance.

Creating and Managing Cash Discounts

You have the ability to generate cash discounts for customers, vendors, or both, right from the Cash Discounts page. The Next discount code field allows you to design a progressive sequence of discounts, each one taking effect after the expiration of the previous one. More details on this can be found in the “Example: Series of Cash Discounts” section below.

Furthermore, cash discounts can be calculated with a specific exchange rate, based on the date of payment or credit note if the transactions are conducted in different currencies. And if invoices and credit documents are created under different legal entities with varying accounting currencies, the exchange rate is derived from the legal entity of the invoice, on the date of the credit document. A specific example regarding this is elaborated later in this article under “Example: Exchange Rates for Cash Discounts.”

Priority in Defaulting Order for Cash Discount Main Account

When an invoice qualifies for a cash discount, the system posts it to the cash discount main account according to this priority sequence:

  1. The account specified in the Alternative cash discount account field on the respective customer or vendor transaction settlement page.
  2. The account mentioned in the Customer or Vendor cash discount field, linked to the sales tax code’s ledger posting group, which can be configured on the Ledger Posting Groups page.
  3. The main posting account in either the Main account for customer discounts or the Main account for customer discounts or the Main account for vendor discounts field, related to the cash discount code on the settled invoice.
  4. The defined main account for cash discounts on the Accounts for Automatic Transactions page.

Example: Series of Cash Discounts

You can create a series of cash discounts like:

  • Code 5D10%: 10% discount if paid within 5 days.
  • Code 10D5%: 5% discount if paid within 10 days.
  • Code 14D2%: 2% discount if paid within 14 days.

By using the Next discount code field, these codes are set to follow each other in sequence, granting only one discount based on the payment date.

Example: Exchange Rates for Cash Discounts

Imagine your accounting currency is EUR, with specified USD exchange rates:

  • February 1 = 110
  • March 1 = 80

An invoice for 1000 USD posted on February 15 equates to 1100 EUR. A subsequent payment of 980 USD on March 1 calculates to a cash discount of 20 USD and 784 EUR. The discount amount in EUR is calculated using the exchange rate on March 1, resulting in 16 EUR.

Next Steps

If you are interested in learning more about cash discounts with Microsoft Dynamics 365 for Finance, contact us here to find out how we can help you grow your business. You can also email us at info@loganconsulting.com or call (312) 345-8817

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