Overview of Payment Terms
Payment terms normally apply to sales on credit. You establish the period within which you expect payment from customers or to suppliers. There are two types of payment terms:
· Normal Payment Terms
· Early Payment Terms
You create and maintain these terms in the Edit…Terms…Normal Payment Terms and Edit…Terms…Early Payment Terms menu options.
Normal Payment Terms
It is important to establish payment terms because you want to know when a customer is overdue. Similarly, you want to know when suppliers will demand payment.
Pastel keeps track of each customer’s payment term. At the end of a period, you can produce overdue reports to see which customers are behind on their accounts. You can also set up Pastel to charge interest on overdue balances.
Payment terms can be based on the following:
· Monthly Terms
These are based on financial periods. There are five of these terms called Current, 30 days, 60 days, 90 days and 120+ days.
· Day Based Terms
These are based on days. These terms only work with accounts that are open item.
Early Payment Terms
Typically, normal payment terms tend to last for a longer period of time. You can then offer early payment terms, also known as settlement discounts, as an incentive to encourage customers to pay early. Similarly, suppliers could offer you the discount.
Pastel determines the duration of each term in one of two ways. It is based on a specified number of days from:
· The Date of Invoice
The payment period starts from the date of the invoice.
· The Last Day of the Period
The payment period starts from the last day of the current period.