Create Pay Term – A summary of the activity

The “Pay Term” business component defines the terms of payment that you can apply to a purchase transaction. A pay term is identified by a unique code. You can create pay terms in the “Create Pay Term” activity of this business component. A payment term may consist of various payment stages (installments) with different payment schedules. Each pay term consists of the following information:

• For each payment stage or installment, the number of days (credit days) from the anchor date within which you need to pay to the supplier. (The anchor date is obtained from the “A/C payable” business component.)

• Percentage of payment to be made to the supplier before the due date, for each stage

• The discount days within which you can avail the discount in payments, for each stage

•  Percentage of discount that can be availed, if you pay within the discount days, for each stage

• Percentage of penalty to be paid to the supplier, if you pay after the due date, for each stage

The following table illustrates the details contained in a typical pay term, PT1.

Let us say the anchor date is 1 January 2002 and the total amount due is $10000. Applying the pay term PT1 to a purchase transaction, you can generate the following payment schedule for that transaction:

The pay term created will be in the “Active” status. These pay terms are mapped to the suppliers, and during a purchase transaction, the default pay term is attached to the supplier. However, you can change the pay term that is already attached to a supplier, at the time of raising a purchase order for that supplier.

You can modify the details of a pay term in the “Edit Pay Term” activity. The user who created the pay term will have rights to modify the pay term details.

Calculating Proportional Discount

Case 1: Proportional Discount set to “Yes”

Let us consider the following scenario to understand the calculation of proportional discount in a payment schedule.

As mentioned earlier, payments can be made in stages. In the above example, you need to pay 40% of the due amount in the first stage and 60% in the second stage. It is also possible to further stagger the first stage payment into two installments, say 25% and 15%. Let us assume that you pay the first installment of 25% on the 19^th day and second installment of 15% on the 45^th day. If “Proportionate Discount” parameter is set to “Yes” in the “Create Pay Term” activity, the system will calculate the discount on the proportional payment made before discount days and penalty on proportional payment made after the due days.

In the above example, the system calculates 3% discount on 25% (the payment made on 19th day, which is before the discount days). The system calculates 3% penalty on 15% (the payment made on 45th day, which is after the due days).

Case 2: Proportional Discount set to “No”

If “Calculate Proportional Discount” parameter is set to 'No', the system calculates the discount or penalty on due percentage only after the entire due percentage is paid. Considering the example provided in Case 1, the system will consider the entire amount as due even though 25% of the due is paid before the due date, and will calculate penalty on the entire amount, that is, 3% on $10,000.

In the “Create Pay Term” activity, you can create a pay term and assign a unique number and description. You can define the effective date period during which the pay term is valid. You can also define the type and category of the pay term and set the “Calculate Proportionate Discount” option in this page.

This page also allows you to define the due days, due percentage discount days, discount percentage and the penalty percentage for the pay term. The system assigns the status "Active" as soon as the pay term is created and stores the name of the login user and the current server date as the created date.

Click here to learn how to create pay term

What you can do in this activity

Enter effective date period for the pay term

Enter payment details for a pay term

Set the parameter to calculate proportionate discount

Categorize pay term

Enter effective date period for the pay term

You can enter the effective date period during which the pay term is applicable for a purchase transaction.

• Use the “Create Pay Term” page, to enter the effective date period during which the pay term is valid.

Enter payment details for a pay term

For each pay term created, you can define the number of days (due days) before which the payment should be made, and the percentage of payment to be made to the supplier in each stage, if the payment is made in multiple stages. You can also define the number of days (discount days) within which you can avail the discount offer and the percentage of discount that can be availed, if the payment is made within the discount days.

For each pay term, you can also define the percentage of penalty that you need to pay to the supplier, if the payment is made after the due days.

• Use the “Create Pay Term” page, to enter the payment details for the pay term.

Set the parameter to calculate proportionate discount

You can make payments in stages. It is also possible to further divide these payment stages and pay it in installments. If “Proportionate Discount” parameter is set as “Yes”, the system will calculate discount for each installment paid before the discount days and penalty on installment paid after the due days. If “Proportionate Discount” parameter is set as 'No', the system calculates discount or penalty on due percentage only after the entire due percentage is paid.

• Use the “Create Pay Term” page, to specify whether the system should calculate proportionate discount or not.

Categorize pay term

You can categorize pay terms, based on the common category defined in the “Create Common Category” activity of the “Logistics Common Master” business component.

• Use the “Create Pay Term” page, to categorize the pay term.