Establish customer payment terms

Payment terms determine how you manage due dates and payment discounts. Dynamics 365 Finance includes payment methods that businesses often use. You can add any payment methods that your organization prefers.

When you assign payment terms to customers, those terms will always be used on the sales and purchase documents you create for them. The document dates on sales and purchase documents are used to calculate due dates for payments.

Note

If needed, you can change the terms on the sales or purchase document, such as if you want a particular customer to pay you within 7 days rather than the default 14 days.

Changing the terms on the document doesn't change the default payment term assigned to the customer. The same payment terms are available for sales and purchase documents.

Establishing payment terms includes three primary steps:

1. Set up a Payment day, you create an expected day of the week (Monday, Tuesday) or specific day of the month (5th, 10th) for your customers to submit payments.
2. Define your Payment terms calculates due dates for your customer's payments.
3. Set up Discount dates to indicate the final date in which a customer can receive a discount for your products.

When you post an invoice, Dynamics 365 Finance calculates the payment discounts and payment discount dates based on the payment terms.

Similarly, when you post a credit memo, Dynamics 365 Finance calculates payment discounts based on the payment terms. It calculates the discount on credit memos in the same way as discounts on invoices. When you apply a credit memo to an invoice, Dynamics 365 Finance reduces the discount amount for the invoice by the credit memo's discount amount.

Payment day setup procedure

To define the payment days to be used for customer payment terms, follow these steps:

1. Go to Accounts receivable > Payments setup > Payment days. The setup for the Terms of payment is shared for Accounts receivable and Accounts payable. If you have already defined it in one module, it's available in other modules.
2. Select New.
3. Create a payment day if your terms of payment require a specific day of the week (Monday, Tuesday) or a specific date of the month (5th, 10th).
4. Fill in the Payment day, Description, and Week/Month fields as needed.

   Note

   In the Day of month field, enter a date. The date should be entered as a number, such as '10'.

5. Click Save.

Set up payment terms

Terms of payment are used to define how due dates are calculated.

To define payment terms, including the payment method and payment day, follow these steps:

1. Go to Accounts receivable > Payments setup > Terms of payment.

2. Select New.

   Note

   If the Terms of payment is Cash, the Cash payment field on the Terms of payment page must be No.

3. In the Terms of payment field, enter an ID.

4. In the Description field, enter a description of the payment terms.

5. Select a Payment method and Payment day.

   • Payment method defines the start of how the due will be calculated. For example, Net is used if the due date is always a set number of months or days after the invoice date. COD can be used to when payment is required upon invoice, so a due date wouldn't be calculated.
   • Payment day can be set to a specific day of the week or date are included in the calculation. Depending on your terms of payment, you may enter a quantity in Months or Days. Or you can use the Payment schedule or Payment day to add to the end of the Payment method. If you're using a Payment calendar, you can define how the due date is determined when the calculated date lands on a non-workday. The initial due date is calculated using calendar days. If the calculated date lands on a non-workday, you can adjust the calculated due date to either the next working date or earlier working day.

6. Click Save.

Set up cash discounts

To set up a cash discount calculates discount dates for customer payment terms, follow these steps:

1. Go to Accounts receivable > Payments setup > Cash discounts. Select New.
2. In the Cash discount field, enter an ID.
3. In the Description field, enter a description of the cash discount.
4. In the Discount percentage field, enter a cash discount percentage.

   Note

   If a tiered cash discount is available, select the Next discount code that is relevant after this new cash discount.

5. In the Main account for customer discounts field, enter the main account to which the cash discount sends customer invoices.
6. In the Discount offset accounts field, select an option.
   • Select Accounts on the invoice lines to post the cash discount to the same asset/expense main account on the lines of the vendor invoice.
   • Select Use main account for vendor invoices to post the cash discount to the main account defined in Main account for vendor invoices.
7. In the Main account for vendor discounts field, enter the main account to post the cash discount for vendor invoices.
8. Click Save.