About calculating supplier discounts

For supplier document-level discounts, which are unconditional, the tiers can be created only by break points defined as amounts, while the discount can be defined as a percentage of the document amount or as a fixed amount. When the system processes a purchase order or an invoice, for each discount series, the discountable amount is compared to the break points in the discount series as follows:

1. The document amount is compared to the first break point.
   If the amount is less than the first break point in the series, the discount equals zero, and further comparison is not performed.
2. The document amount is compared to a next break point.
   If the amount is greater than or equal to any break point but less than the next break point or greater than the last break point, the system calculates the discount as follows:
   • If the discount is a fixed amount, the fixed amount specified as the discount for this tier is deducted from the document amount.
   • If the discount is a percentage, the percent (specified for this tier) of the document amount is calculated and deducted from the document amount.
   • Further comparison is not performed.
3. Comparison continues similarly, with Step 2 repeated until a discount is found or the last break point is checked.

Example 1
If a series for a document-level discount has tiers defined by amounts with the discounts expressed as percentages, the discount amount corresponding to the appropriate tier is subtracted from the document total.
Suppose that the series is specified with the following break points:

• 1000€: 5%
• 2000€: 7%
• 5000€: 10%

For a document with 900€ total, the discount is zero, while for the document with 2500€, it is 175€, and for a document with total of 9000€, the discount is 900€. Example 2
Next, suppose that a series for a document-level discount has tiers defined by amounts, with the discounts expressed as fixed amounts that are subtracted from the total amount.
Further suppose that the series is specified with the following break points:

• 1000€: 100€
• 2000€: 225€
• 3000€: 350€

For purchase orders with amounts less than 1000€, your company will receive a discount of zero.
The discount for an order with a total between 1000€ and 1999.99€ is 100€, the discount on an order between 2000€ and 2999.99€ is 225€, and the discount for an order of 3000€ or more is €350€.

Tiers for line-level discounts can be defined by amounts or by quantities.
The method of calculation for line-level discounts depends on whether the discount should be applied to item prices or to item extended prices.
Based on the information received from each supplier, select the appropriate option in the Apply line discounts to field on the Calculation settings tab of the Supplier discount codes (AP204000) window for this supplier. Line discounts applicable to item extended pricesIf the discounts should be applied to extended prices of items for a particular supplier, and the tiers are defined by amounts, the line amount is compared to the first break amount.

If the amount is less than the first break amount in the series, the discount equals zero, and further comparison is not performed.

Otherwise, discount calculation proceeds as follows:

1. The line amount (that is, the extended price of the item) is compared to the first break point.
   
   If the amount is less than the first break point in the series, the discount equals zero, and further comparison is not performed.
2. The line amount is compared to the next break point.
   
   If the amount is greater than or equal to this break point but less than the next break point or greater than the last break point, the system calculates the discount as follows:
   • If the discount is a fixed amount, the fixed amount for this tier is deducted from the line amount.
   • If the discount is a percentage, the percent (specified for this tier) of the line amount is calculated and deducted from the line amount.
   • Further comparison is not performed.
3. Comparison continues similarly, with Step 2 is repeated until a discount is calculated or the last break point is checked.

Example 3
Your company buys an item for 95€. If a series for a line-level discount has tiers defined by amounts with the discounts expressed as percentages, the discount amount calculated as a percent (defined for the appropriate tier) of the extended price of the item is subtracted from the extended price.
Suppose that the series is specified with the following break points:

• 1000€: 5%
• 2000€: 10%
• 5000€: 20%

For a line with 10 items (the extended price is 950€), the discount is zero.
For a line with 20 items, the discount is 190€.
And for a line with a total of 60 items (the extended price is 5700€), the discount is 1140€. Line discounts applicable to item pricesIf, for the particular supplier, the discounts should be applied to item prices, check that the break points defined as amounts are comparable to prices (not to extended prices). The price of the line item is compared to the first break point. If the amount is less than the first break point in the series, the discount equals zero, and further comparison is not performed. Otherwise, discount calculation proceeds as follows:

1. The line item's price is compared to the first break point.
   
   If the item price is less than the first break point in the series, the discount equals zero, and further comparison is not performed.
2. The item price is compared to the next break point.
   
   If the price is greater than or equal to this break point but less than the next break point or greater than the last break point, the system calculates the discount as follows:
   • If the discount is a fixed amount, the fixed amount for this tier is deducted from the item price, and the extended price is recalculated.
   • If the discount is a percentage, the percent (specified for this tier) of the item price is calculated and deducted from the item price.
   • Further comparison is not performed.
3. Comparison continues similarly, with Step 2 repeated until a discount is found or the last break point is checked.

If, for the particular supplier, the discounts should be applied to item prices and a series is broken down by the quantity of the item, the line quantity of the item is compared to the quantities selected as break points, and the discount is calculated as follows:

• If the discount is defined as a percentage, the specified percent is deducted from the item price and then the discounted price is multiplied by the line quantity.
• If the discount is defined as a fixed amount, the specified fixed amount is deducted from the item price and then the discounted price is multiplied by the line quantity.

Example 4
Your company buys different items with prices 95€, 210€, and 600€.
If a series for a line-level discount has tiers defined by the amounts with the discounts expressed as percentages, the discount amount is calculated as the percent (defined for the appropriate tier) of the item price and is subtracted from the price.
Suppose that the series is specified with the following break points:

• 100€: 5%
• 200€: 10%
• 500€: 20%

For a line with 10 units of the item priced at 95€, the discount will be zero.
For a line with 20 units of the item priced at 210€, the discount will be 2.10€ per unit with the discount for the line at 42€.
And for a line with 600€ item, the discount will be 120€ per unit.

Discount series can be prorated if the Prorate discounts option is selected in the Supplier discounts (AP205000) window.
For prorated discount series, the discount amount is calculated so that your company doesn't need to split a purchase order to get a greater discount amount.
The Prorate discounts option is applicable to discount series with discountable quantities as well as with discountable amounts. Example: In this section, we will consider an example of a prorated group-level discount defined for quantity tiers.
The series defines the discount with the following tiers:

• 10 units: 1 unit of the item
• 20 units: 2 units of the item
• 40 units: 3 units of the item

To determine the discount for a discountable quantity larger than one break point but less than the next break point, the system treats the discountable quantity as a combination of break point quantities, using the largest possible break point quantities.
It then calculates the discount according to the break points used. With prorated discounts, a purchase order for 50 units would yield 4 units of the item, computed as 3 (for 40 units) plus 1 (for 10 units).
For an order of 70 units, the discount is calculated as 6 units of the item: 3 as the discount for 40 units, plus 2 item's units as the discount for 20 units, plus 1 unit of the item as the discount for 10 units.