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Discounts from suppliers are never a bad thing, the difficult decision can often be how to make best use of them.
In some instances it may be seen as simply an opportunity to increase profit, while in highly competitive trading environments it provides a chance to offer a lower price point whilst retaining margins. Of course in certain situations the decision may be taken out the seller’s control as the discount provided could be advertised directly to consumers by the manufacturer and be part of a wider brand promotion.
If these discounts take the form of a simple price reduction this is a straight forward situation to manage. The purchase order will be raised at the reduced price, goods booked in at the lower cost, true margins will be easily visible and accurately recorded while the supplier invoice will already have the discount applied.
However not all supplier discounts are handled in this way. Some will need to be claimed retrospectively, which can be common when discounts are offered by manufacturers. Others may even take the form of a rebate, available should certain volumes or order values be reached. With retrospective discounts a purchase order can be raised and a supplier invoice received at the full price, even though it is known from the outset that a Credit Note will be issued by the supplier at a later date to cover the discount offered.
While from a financial point of view the receipt of a Credit Note from the supplier ensures the discount is honoured, handling it in this way means purchase order costs are recorded at the higher price, leading to distorted margins and order profitability. These skewed figures can not only result in sales being lost due to pricing, when adding an otherwise affordable discount may be the key to closing the sale, but also lead to key decisions and performance reviews being based on incorrect data.
In addition to this, if products which have been retrospectively discounted do not have their cost adjusted correctly, the stock will not be accurately valued. Therefore it is important that businesses who wish to keep track of exact costs and maintain precise figures are able to manage these discounts in an appropriate manner.
New development in the 2014 v9.4 release has enhanced functionality available within Purchase Orders providing the ability to apply a retrospective discount to a purchase order line. This can be achieved by entering a discount value in the retrospective discount field under purchase order line information. The discount amount, in a foreign or base currency, can then be pulled on to the purchase order line by editing the grid layout.
This retrospective discount will then be applied when the cost of stock is recorded against the Goods In transaction associated with the Purchase Order. This ensures the retrospective discount can be accounted for from the moment the stock arrives with costs, margins, profitability and stock values reflecting the eventual cost once the discount has been processed. This Purchase Order value will remain at full price as the expectation is that a supplier invoice will be received for this value before a subsequent supplier Credit Note is received for the discount value. Users can then raise a debit against the supplier so that the discount is then reconciled on to their accounts package.
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