Hi all

This is the req from my client.

They want to implement the Cash Discount for Outgoing Payments.The req is as
follows

1. Cash Discount are maintained in percentage,which are annual.

2. Cash Discount for a particular Vendor is fixed.However at the time of
payment clearing,we should be able to change the Cash Discount percentage.
3.Payment Clearing for one invoice can be multiple and the Cash Discount %
for the same vendor may differ for each clearing document
4.Cash Discount should be calculated on each Payment Clearing Document
5.The effect of cash discount should not be given to MAP.
6. The discount is to be calculate on the no. of days,as we made the payment
before the due date.

For eg
Vendor Payment terms 60 days
Invoice Date 1.11.06
Invoice Amt Rs.10000/-
Due date 30.12.06
Payment Date 20.11.06 ( Full payment Made)
Discount Rate 9% p.m.
Expected disount Rs.1200/- (10000*9/100*40/30)

Accounting entry that should be triggered for Cash disount should be as

Dr Vendor account 1200

Cr Cash Discount a/c 1200

If any one come has done this type of config. pls help me as it is an urgent
issue.........

Thanx in advance
Regards
Pran

Definiition of Bill Discounting

Business activities across borders are done through letter of credit. Letter of credit is
an instrument issued in the favor of the seller by the buyer bank assuring that
payment will be made after certain timer frame depending upon the terms and
conditions agreed, it could be either sight, 30 days from the Bill of Lading or 120
days from the date of bill of lading. Now when the seller receives the letter of credit
through bank, seller prepares documents and presents the same to the bank.

The most important element in the same is the bill of exchange which is used to
negotiate a letter of credit. Seller discounts that bill of exchange with the bank and
gets money. Discounting bill terminology is used for this purpose. Now it is seller’s
bank responsibility to send documents and bill of exchange to buyer’s bank for
onward forwarding to the buyer for the acceptance and the buyer finally, accepts bill
of exchange drawn by the seller on buyer’s bank because he has opened that LC.
Buyers bank than get that signed bill of exchange from the buyer as guarantee and
release payment to the sellers bank and waits for the time span will buyer will pay
the bank against that bill of exchange.
 Discounting of bills

Meaning of the word discounting:

•a contract

•source of short-term finance

•the process of calculating the present value of some future amount
Bill Discounting
When a firm holds other drawer’s bills of exchange with distant terms of payment
and is money short, the amount of the bill shall be subject to a discount.
Discounting is a special form of lending, when a bank buys a bill prior to maturity
at a price lower then the nominal amount of the bill of exchange (with a discount).
Discounting bills indicates the operation by means of which a bank, having
previously deducted the interest, advances to its client - the creditor - the amount
corresponding to the value of one or more bills bearing a future date which the
client cedes to the bank by endorsement.
The discounting of bills are a widely used source of short-term finance.
Commercial bill discount refers to the service that the holder commercial
acceptance draft transfers his draft to bank for obtaining funds before the day of
draft maturity. The cash received is posted to the bank account and the bill of
exchange charges are posted to the appropriate expense account. If the drawee
does not pay the bill of exchange on the date of maturity, it is protested.

The grounds for discounting the bill

Bills of exchange are discounted before their maturity date. The grounds for
discounting the bill before its maturity date is Bank’s consent for discounting,
written request addressed to the chairman of board by the drawer, and the bill of
exchange itself.
Before the bills can be discounted they are checked for juridical authenticity and
legitimacy of the drawer (the number of valid endorsements is considered,
though the last endorsement may be the blank endorsement).
Discounting of bills means purchase of bill by the Bank from the drawer before
the due date.
All discount transactions are performed by the Bank basing on agreement
concluded between the Bank and the drawer. Pricing for bills discounting is
determined basing on the bill discount rate and is specially agreed with the
drawer for every separate bill. The Bill Discounting operations include
presentation of bills, application of conditions, dispatch of Bills to the concerned
banks for collection and dispatch of unpaid bills to the notary for protest
Charges
A fee is charged as payment is made before the due date is reached. In other
words face value minus the fee will be paid. the fees charged by the bank for
accepting the bill of exchange. The minimum charge for bill discounting tends to
vary according to the credit-worthiness of the companies. The pricing for bill
discounting is determined individually.
A discount house buys a bill or security for less than its face value. Rather than
receiving interest, the discount house waits till the bill matures, and collects the
money (at the face value). The amount paid for the bill depends on the time till
maturity and the short-term rate of interest.
Discount Rate: the rate used in calculating the present value of some future
monetary amount.
Discount period: the period between the date of discounting and the future due
date of the receivable
Discounting fee: the discount fee is the difference between the nominal value
of bill of exchange bought by the Bank from a client and the sum credited to the
client's bank account. The difference, made up of the time-proportionate interest
up until the due date plus the risk-based charge, which varies according to the
risk involved, is deducted as the bank's fee (discount rate).