How do I handle discounts for early payment of my invoices?

If you create a sales invoice for your customer and want to offer them a discount for early payment, the best way to do this is as follows:

  1. Create the sales invoice as usual, listing the items you want included on the invoice. Edit the Payment Terms for the customer to include the text "We offer a 10% discount if payment is made within 10 days of the invoice date."

  2. Assuming the customer pays a reduced amount instead of the full amount because they pay early, or if there are any fees that you would pay as a result of receiving the payment (for example PayPal fees) we can account for it using a new expense account. If you haven't already added an expense account to track the discounts (or fees), add one now. This account will typically be in the category Direct Expenses. Call the account something like "Discounts for early payment" or "PayPal fees".

  3. When you receive the money, find the original sale transaction and use it to enter a new payment. The process is slightly different on iOS and Mac, but in both cases you're using the sale to create a new linked payment. The app defaults the amount to the full sale amount. Leave the amount alone for now and just Add a new split. In the split choose the expense account from step 2. Set the amount equal to the discount amount (or fee). You should notice the amount in the first split (going into your bank account) reduces automatically.

  4. Use the Customers screen to check the customer balance, which should now be zero. That is, unless they also owe you money for other invoices. You can also check the expense account, which should show an increased balance due to the discount amount.