Trade Discounts
Accounts Receivable Overview Information Guide
Overview:
A trade discount is a discount that is usually given to contractor or construction customers.
These customers maintain a regular account, and if they pay their invoices within a specified time period, they receive the trade discount amount. The trade discount applies only to rentals, damage waiver, and taxes.
Services and sales are excluded from the discount.
The advantage of a Trade Discount versus a standard Discount when payment is received within the discount days, is that when the trade discount is given at receipt of payment, special adjusting entries are automatically generated to the General Ledger to account for the reduced rental revenue, damage waiver, and taxes by the discounted amount.
This ensures that Sales History and Monthly Revenues accurately reflect the discount given.
Note: Trade discounts cannot be used if your firm uses split billings.
Time-Based Discounts are NOT eligible for Trade Discounts as well.
For details on the Time-Based Discount feature, refer to Time-Based Discounts in the Divisional Rate Parameters.
Trade Discount Set Up:
•Usually a special terms code is setup to be assigned to "trade" customers, with the appropriate "Due Days" and "Discount Days", however any terms code can be used.
•It is important to setup the terms Description properly in Terms Codes, as it prints at the top of the invoice.
•The number of Disc Days defined in the Terms Codes determines the Discount Date and the Trade discount is given only if the invoice is fully paid in one invoice prior to the calculated Discount Date.
•In the window on the Discount% field of the Terms Code, the trade discount can be set to apply to just the rentals, or also to the damage waiver and/or taxes.
Note: Because the Trade Discount % is specified for each customer in the Customer Information, the Discount % set in the Terms Codes not used.
•The G/L trade discount clearing account can be setup in the last window of the Default Accounts table for each currency.
Since this account is a clearing account, the net activity should always be zero. The software posts the trade discount back to the original discount/revenue and tax accounts, through this posting account.
•The terms code must be assigned to each trade customer in the Customer Codes window.
•Set the appropriate discount percent for each relevant customer in the Trade Disc % field in Customer Information.
(The Discount% set in the Terms Codes file is not used for trade discounts.)
Note: A customer can be allowed both a trade discount percent given at receipt of payment, and a regular rental discount percent given when the products are entered on the document, and this will "double up" the discount.
•Specific classes can be flagged so that any Trade Discount does NOT apply to the rental equipment in that class.
•An optional default Trade Discount G/L Account can be setup for rental products, to handle the debit for relevant trade discounts for products in the class, instead of debiting rental revenue.
If no account is specified, then the Revenue Account will be reduced by the product discount amount with the debit posting.
•Specific rates can be flagged at the company level, so that any Trade Discount does NOT apply on rental products that are billed at this Rate Code level.
•Specific Special Rate Codes can also be flagged so that any Trade Discount does NOT apply to rental equipment that is being given these special rates.
Contracts/Reservations/Rental Quotations with Trade Discounts:
When entering a reservation, quotation, or contract, the trade discount percentage will default from the Customer Information, and for each eligible rental product the Trade Discount amount will be displayed in the expanded product detail record.
When applicable, the words *TRADE DISC* are displayed in the bottom right corner of the document Totals screen.
To view or change the trade discount percentage on a contract or reservation, in the Totals screen window on the "Amt of Deposit" field and again on the Trade Discounts prompt in the sub-menu.
This trade discount will be carried forward to the invoices produced from this document.
To view or change the trade discount percentage on a rental quotation, in the Totals screen, window on the Enter to Continue prompt.
No Trade Discount will be given on a rental product under the following conditions:
•The customer does not have a value in the Trade Disc % field in Customer Information.
•The Product Class for the equipment is flagged for NO Trade Discount in Rental Product Classes.
•The discount has been over-ridden on the product detail and no longer matches the regular rental discount from the document header.
•The Rate level has been flagged for NO Trade Discount in Company Default Rates.
•The Special Rate has been flagged for NO Trade Discount in Special Rate Codes.
•The rate is over-typed to be less than the regular rate for the product.
Note: Once the Trade Discount is disallowed on a product detail on a contract, reservation, or quotation, it will NOT be reinstated even if the restricting factor is changed.
To re-instate a Trade Discount, the product detail line must be deleted and re-entered.
Invoicing with Trade Discounts:
An invoice that is generated from a reservation, quotation, or contract, assumes the same Trade Discount as the source document.
When entering a Miscellaneous invoice the trade discount and terms will default from the setup in Customer Information, and the same conditions apply as explained above for contracts.
The Trade Discount flag for the product is displayed in the expanded invoice detail record. This can be changed if required.
The Trade Discount % can be viewed and changed in the invoice Totals window, in the window at the "On Acct" prompt.
The invoice Totals window will show the current terms code. If the invoice has no rentals on it, the counter staff should change the terms code to another code (e.g. Net 30) to reflect that the discount does not apply.
The invoice totals do not reflect the Trade Discount amount, since this discount amount only applies if the invoice is paid by the Discount Date.
The invoice will post to the General Ledger as if it were a standard invoice. If the customer pays on time and is given the discount during payment, the software program makes posting adjustments at that time for the trade discount.
The Trade Discount reminder prints near the bottom of the invoice as a note with the Due Date, the Discount Date, and the potential Discount amount.
A/R Payments with a Trade Discount:
When the customer makes a payment for the "trade" invoices, the payment must be received in Customer Payments by the Discount Date of the Invoice and it must be paid in full by one check, in order for the trade discount to apply.
When the invoice is selected for payment, and Amt To Pay is entered as the full amount, the Discount amount will display if the Terms have been set properly. If no discount amount displays, the desired discount amount can be manually entered.
If the Trade Discount applies in Customer Payments, a window opens displaying the Trade Discount Information based on the rentals, damage waiver and taxes only for that invoice.
The option is provided to accept the discount as a Trade Discount or process it as a standard discount.
If the trade discount does not apply, then the window does not open.
Note: The discount amount can only be over-typed on standard discounts.
Posting A/R Payments:
When Post Customer Payments is run, a Trade Discount Transactions report and a Trade Discounts Summary are printed, after the standard A/R Payments reports are printed.
G/L postings are generated for the trade discount, with the Source Document being the same as the original invoice but with a T in front, e.g. T 23441.
This posting is similar to a credit invoice, as it Debits the Trade Discount G/L account specified in Rental Product Classes for each corresponding product on the invoice. If no account is setup for a Class, then the product Rental Revenue will be reduced by the debited discount amount.
In the Monthly Product History and Detailed Revenue History the original invoice record shows as reversed on the day of the payment, and then as re-entered with the discounted charge, to correctly reflect the Trade Discount given on each product.
Note: If a customer payment with a trade discount on it is reversed, the credit invoice for the trade discount is NOT automatically reversed. The credit invoice must be manually reversed.
Posting to the General Ledger:
The posting of the payment and the trade discount to the General Ledger is as follows:
G/L Account Description Acct# Distribution Amount
Credit Accounts Receivable 1200 $150.00 (invoice paid in full)
Debit Trade Discount Clearing 4831 22.50 (Trade Discount 15%)
Debit Method of Payment Account 1100 127.50 (Customer's Payment Amount)
Debit Prod Class Trade Discount 4835 18.29 (15% of $121.90 rental charge)
or Class Revenue Acct (4000)
Debit Damage Waiver 4160 1.28 (15% of $ 8.53 damage waiver)
Debit Tax 1 2200 1.37 (15% of $ 9.13 total tax 1)
Debit Tax 2 2210 1.56 (15% of $10.43 total tax 2)
Credit Trade Discount Clearing 4831 22.50 (clears debit to Trade Discount)
Note: The posting of the Trade Discount credit invoice uses the same date as the payment.
The debit entries to the Product Class Trade Discount, Rental Revenue, Damage Waiver, and tax accounts will use the same division as the original invoice.
Topic Keyword: TDISC