Factoring Companies Guidebook
Settlement Discount
Definition
Where the Client's terms and conditions of sale allow settlement discounts to be deducted by customers, given that the customer payment is received within a specific period.
Concerns
Any discount which is not already reflected in the net invoiced value will potentially result in a dilution of the collectable value of the invoice and therefore our security. Settlement discounts are rarely of high value and are generally actioned promptly, by their very nature.
Identification
Settlement Discounts are generally recorded on the face of an invoice e.g. Deduct 2.5% if paid by (date), or within the Client's terms and conditions.
Amounts deducted from payments may be shown in the Cash Book or in the Cash Postings allocation listings.
Review invoices and customer remittance advice notes, as well as the Client's terms and conditions, to validate any discount taken.
Treatment
Eligible deductions are allowed.
The prompt notification to us of the values deducted should be monitored. We should ensure that our records are continually up to date, as settlement discounts may vary by timing, product, season and customer. Credit notes and journals should be raised promptly and advised to us.
Industries where settlement discount is common:-
- Clothing
- Jewellery
- Toys
