Do cash discounts traditionally apply to the entire invoice amount (including freight and taxes) or just the amount related to the product/service?
Answers
In my experience, primarily with distributors in Missouri, prompt payment discounts only apply to the merchandise amounts, not freight and certainly never taxes.
If I am configuring my ERP for Customer cash discounts (i.e. settlement of invoice faster), then I agree with Brenda's comment.
If the terms from my vendor are silent, I will regard the discount as applying to the amount due (i.e. the invoice total) when I process my AP payments.
Sounds like it depends on your perspective. I would agree with Brenda and go back to Len for short paying his freight .
Just the amount related to the product/service as the added amounts for freight/taxes are often out-of-pocket costs (i.e. little to no margin) to the selling company.
Merchandise only; taxes & freight are always pass through items. For example, When you look at contractual items such as specialty manufacturing or mining/extraction you will see clear language that any discounts offered, applied or taken cannot be associated to things such as taxes, freight, accessments or other pass through items.
J.D. Floyd