Cash discount
What is a cash discount?
A cash discount ("korting contant" in Belgium, also called a prompt payment or financial discount) is a reduction you give a customer for paying an invoice quickly, for example within 8 or 10 days. Despite the name, it has nothing to do with paying in cash. It is about paying within an agreed term.
State the percentage and the term clearly on the invoice, for example: "2% cash discount if paid within 10 days".
How is VAT calculated?
Under Article 28, 1° of the Belgian VAT Code, "amounts that may be deducted from the price as a discount" are not part of the taxable amount. In practice:
- VAT is calculated on the amount after deducting the cash discount.
- This always applies, even if the customer pays late and is no longer entitled to the discount. The VAT is not corrected afterwards.
- The discount itself is calculated on the amount excluding VAT.
Customary maximum: 2%
In practice, a cash discount is usually 1 to 2%. 2% is the customary maximum.
Example 1: € 1,000 excl. VAT at 21%, 2% cash discount
| Amount | |
| Price excl. VAT | € 1,000.00 |
| Cash discount 2% | € 20.00 |
| Taxable amount | € 980.00 |
| VAT 21% (on € 980) | € 205.80 |
| Total due without discount (after the term) | € 1,205.80 |
| Total due with discount (within the term) | € 1,185.80 |
The VAT is € 205.80 in both cases. If the customer pays on time, they pay € 1,185.80. If they pay late, they owe € 1,205.80.
Example 2: € 1,000 excl. VAT at 6%, 2% cash discount
| Amount | |
| Price excl. VAT | € 1,000.00 |
| Cash discount 2% | € 20.00 |
| Taxable amount | € 980.00 |
| VAT 6% (on € 980) | € 58.80 |
| Total without discount | € 1,058.80 |
| Total with discount | € 1,038.80 |
Example 3: mixed invoice (21% and 6%), 1% cash discount
With several VAT rates, apply the discount per rate and calculate the VAT per rate on the reduced amount.
| 21% | 6% | Total | |
| Amount excl. VAT | € 500.00 | € 500.00 | € 1,000.00 |
| Cash discount 1% | € 5.00 | € 5.00 | € 10.00 |
| Taxable amount | € 495.00 | € 495.00 | € 990.00 |
| VAT | € 103.95 | € 29.70 | € 133.65 |
| Total without discount | € 1,133.65 | ||
| Total with discount | € 1,123.65 |
Why isn't the total simply excl. VAT x 1.21?
With a regular discount, the price really goes down: the customer pays € 980 + € 205.80 = € 1,185.80, which is exactly € 980 x 1.21. With a cash discount, the invoice shows the full price of € 1,000, but the VAT is calculated on € 980. That is why the total without discount (€ 1,205.80) is not equal to € 1,000 x 1.21 (= € 1,210). This is correct, not a calculation error.
| Regular discount 2% | Cash discount 2% | |
| Excl. VAT before discount | € 1,000.00 | € 1,000.00 |
| Taxable amount | € 980.00 | € 980.00 |
| VAT 21% | € 205.80 | € 205.80 |
| Invoice total | € 1,185.80 | € 1,205.80 (or € 1,185.80 if paid on time) |
Cash discount in Onlinefact
- In the customer record, enter a percentage at Korting contant (cash discount), for example 2%.
- New documents for that customer take over that percentage automatically.
- In the document itself, you can change the percentage via the arrow for extra fields, as long as the document has not been closed.
- When you convert or copy a document, the percentage is kept.
- VAT is calculated per VAT rate on the amount after discount, rounded to 2 decimals.
- The total to pay does not deduct the discount itself. The customer may deduct it when paying within the term.
- Depending on the document template, the invoice shows the percentage, the number of days and the discount amount.
In short
- Cash discount = a discount for paying within a set term, customary maximum of 2%.
- Always calculate VAT on the price after the discount, whether or not the customer uses it.
- Show the percentage, the term and both amounts due on the invoice.
This article is general information. If you are unsure about a specific situation, check with your accountant.