Payment terms define when an invoice is due and whether paying early earns a discount. They are held under a four-character key and stored on the vendor or customer master, from where they default onto documents at entry.
The two things payment terms define
Broadly, payment terms set a net due date and up to two cash discount tiers, with the higher discount attached to the earlier deadline.
| Terms | First discount | Second discount | Net due |
|---|---|---|---|
| Net 30 | — | — | 30 days |
| 2/10 net 30 | 2% within 10 days | — | 30 days |
| 3/10, 1/20, net 30 | 3% within 10 days | 1% within 20 days | 30 days |
| Month-end cut-off, pay end of next month | — | — | End of following month |
Terms common in Japan, such as cutting off at month end and paying at the end of the following month, are expressed with fixed-day and end-of-month settings rather than a plain day count.
The baseline date
Payment terms say "within so many days", but without a starting point no due date can be calculated. That starting point is the baseline date.
Which date it is derived from is part of the payment terms configuration: the document date, the posting date or the entry date, optionally plus a fixed number of days.
| Derived from | Typical reason |
|---|---|
| Document date | Count from the date on the invoice; the most common choice |
| Posting date | Count from when it was booked |
| Entry date | Count from when it reached SAP; useful when invoices arrive late |
| No default | Entered by hand on the document |
Accounting for cash discount
There are two ways to record a discount, chosen per company code.
- Gross procedure: record the payable at the full invoice amount, and when payment is made with the discount taken, book the difference as discount income. Whether the discount was actually captured becomes visible at payment.
- Net procedure: record the payable net of the expected discount. If payment misses the deadline, the lost discount is booked as an expense, which makes missed discounts easy to see.
Most Japanese companies use the gross procedure, but the net procedure is a better fit if capturing discounts is something the business wants to manage as a metric.
Instalment payment terms
Where one invoice is paid in several instalments, instalment payment terms split the line item automatically at posting into several items, each with its own due date.
Payment blocks
Separately from payment terms, there are times you need to keep a specific invoice out of a payment run — goods not yet accepted, or an amount under dispute. That is what a payment block is for.
A block can be set on the individual line item, or on the vendor master to stop all payments to that vendor. Blocked items are automatically excluded from the automatic payment program (F110).