Using PPA: Scenario 5 - Economic Justification 

Prerequisites

You have:

·         Carried out the customizing work described in Prompt Payment Act Customizing.

·         Created a purchase order for goods that fall into a special category

·         Selected the document date as the default baseline date for invoices

Procedure

...

       1.      The invoice for the purchase order is dated Friday, January 5, and you received it on Monday, January 8.

       2.      The goods are received on Wednesday, January 3 and accepted on Thursday, January 4.

The payment terms are 2 10 Net 30, meaning that 2% discount is available if payment is made within 10 days. Otherwise, net payment is due within 30 days. Payment made later than this incurs penalties.

       3.      Now consider the question of economic justification. To take the offered discount, you must pay within 10 days – that is, by Monday, January 15, 10 days after the SAP baseline date. The system determines that there is justification for taking the discount.

       4.      However, as in all cases, there is a two-day time lag between the details leaving your agency and arriving at Treasury. Two days before Monday, January 15, is Saturday, January 13. The system adjusts for this, making the SAP due date Thursday, January 11.

Result

The due date in the books of your agency is Thursday, January 11, calculated as follows:

...

       1.      January 5 + 10 days (payment terms)  = Monday, January 15.

       2.      January 15 – 2 days (Treasury processing days) = Saturday, January 13.

       3.      This is adjusted by two business days, resulting in the date Thursday, January 11. This is six days (the net due days) after the SAP baseline date. You should send your payment details to the Treasury by no later than this date.