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XII.6.T
Applying Cash Discounts


SECTION OVERVIEW AND POLICIES

The purpose of this section is to inform Business Units to take the contractually entitled cash discounts offered by vendors on contracts, including statewide centralized contracts.

Every Business Unit should have a process to ensure it pays the lowest possible contract price to vendors. Some contract vendors offer cash discounts to Business Units that pay invoices within specified time periods. For example, a vendor may offer a 2 percent cash discount for invoices paid within 30 days. Discount percentages and time periods vary by contract and vendor.

The Office of the State Comptroller (OSC) recently estimated that Business Units made $1.7 million in unnecessary payments to vendors because agencies did not take the cash discounts offered on statewide centralized contracts for invoices paid within the qualifying time periods.

When a Business Unit uses a contract that offers cash discounts, management should ensure accounts payable staff is aware of the discount percentages and specified time periods for taking the discounts. To the greatest extent possible, management should require vendors to include their discount terms on invoices.

Business Unit management should also consider the time it takes for all staff to complete the invoice payment process. This includes Business Unit staff involved in the invoice receipt, review and approval process; Business Unit staff involved in the voucher preparation, approval and submittal process; and OSC’s voucher audit and approval process. OSC generally takes two days to audit and approve vouchers for payment.

Business Unit management should then establish and communicate time frames for affected Business Unit staff to complete their tasks that will allow the Business Unit to take the cash discount. Business Units are urged to take all cash discounts, giving priority to invoices offering the greatest savings.


Process and Document Preparation:

When applying cash discounts, Business Units must select the appropriate pay term to satisfy the cash discount timeframe. Business Units must also enter the appropriate payment date in the corresponding Scheduled Payment Date field of the Statewide Financial System (SFS).

For more information on selecting the appropriate pay term and corresponding scheduled payment date, please see Chapter XII, Section 5F.

 

 

Guide to Financial Operations
REV. 03/19/2012