Cash discounts in Vendor payment process

The vendor can propose offer incentives to encourage us to pay before the invoice due date. These discounts are called as early payment discounts (also known prompt payment discounts/cash discounts).

Benefits of Cash Discounts

Early payment discounts are beneficial for customers as well as for vendors.

Benefits for Vendors

Here’s how a vendor can benefit by offering early payment discounts:

  • Getting paid early.
  • Reducing the risk of non-payment or late payment.

Benefits for Customers

Although, the obvious one for customer is saving the customer money, there are couple more.

  • Save money again. The discounts add up over time to save you a significant amount of money, particularly if several of your suppliers offer the discounts.
  • Build strong relationships with vendors – The sooner you pay a vendor what you owe, the more likely that vendor will be to work with you in the future.

Let’s say that vendor give us a 0.5% cash discount if the invoice is paid within 10 days.

Look at the example below:

Imagine that our company bought some services or goods and received a $1,000 Net invoice. If we pay the invoice within 10 days of receiving it, we might be able to deduct 0.5%, or $5, from the payment. In other words, if we pay in 10 days or less, the invoice can be settled for $995 instead of $1,000. If we pay after 10 days, you must pay the full $1,000 amount.

And now let’s look at the settings in AX

Go to Account payable > Setup > Payment > Cash discounts


Create purchase order

Do not forget to specify Cash discount in the Purchase order header (Note: If you already specified Cash discounts on the vendor, then this field will be filled automatically)

purchase-order-with-cash-discountsConfirm the order by clicking Confirm button on the Action pane on the Purchase fast tab

Invoice the purchase order by clicking Invoice button on the Action pane on the Invoice fast tab

Check the due date of invoice

due-date-invoiceCreate payments in the payment journal (Account payable > Journals > Payment journal).

Go to the Payment journal line and click Payment proposal > Create payment proposal

vendor-payment-proposalVerify generated payment proposal

Invoice amount = 60$

0.5% discount

Cash discount = 60*0.5/100=0.3$

vendor-payment-proposal-with-cash-discountClick Transfer button

Payment line will be created. Payment will include invoice amount minus cash discount


If you go to the Settle open transaction form, you will see that created payment line settled with the invoice and Cash discount will be applied



If you go to the transaction form you will see that a new transaction was created with Transaction type = Cash discount



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