Early Payment Discounts (EPD) are powerful tools used by businesses to encourage customers to pay sooner. But when it comes to accounting systems — especially Odoo — the logic behind how these discounts affect revenue, taxes, and journal entries is often misunderstood.
If you’ve ever wondered how Odoo calculates early discounts, what happens to taxes, or how journal entries are generated, this article breaks it down clearly and practically.
What Is an Early Payment Discount in Odoo?
An Early Payment Discount (EPD) is a financial incentive granted to customers when they pay before a specific date. In Odoo, this is configured using Payment Terms, where you can define:
- The discount percentage
- The deadline to qualify
- Automatic application during payment
Odoo does not reduce the invoice amount upfront. Instead, the discount is accounted for only when payment is made — ensuring full compliance with accounting standards.
Setting Up Early Payment Discounts
In Odoo: Accounting → Configuration → Payment Terms → Create
You can define terms like:
- 2% discount if paid within 10 days
- Remaining amount due in 30 days
When the customer pays early, Odoo automatically computes and posts the discount.
How Odoo Handles Discounts With & Without Taxes
This is where many accounting systems differ — and Odoo's logic is fully IFRS-compliant.
Scenario 1: Early Discount WITHOUT Taxes
If the invoice includes no taxes, the discount simply reduces revenue.
Example
- Invoice amount: $1,000
- Early discount: 2% → $20
- Customer pays: $980
Journal Entries
Invoice Posting
Debit Accounts Receivable 1,000 Credit Sales Revenue 1,000
Payment (discount applied)
Debit Bank 980 Debit Sales Discount 20 Credit Accounts Receivable 1,000
Tax is not affected because none was applied.
Scenario 2: Early Discount WITH Taxes
When taxes exist, Odoo must reduce both revenue and the tax amount because tax is calculated on the net revenue collected.
Example
- Product amount: $1,000
- Tax: 10% → $100
- Invoice total: $1,100
- 2% discount = $20, and tax reduction = $2
Customer pays: $1,078
Journal Entries
Invoice Posting
Debit Accounts Receivable 1,100 Credit Sales Revenue 1,000 Credit Tax Payable 100
Payment (discount applied)
Debit Bank 1,078 Debit Sales Discount 20 Debit Tax Payable 2 Credit Accounts Receivable 1,100
The discount reduces:
- Revenue (by $20)
- Tax liability (by $2)
You avoid paying taxes on revenue you never received.
Why Does Odoo Use This Logic?
This approach ensures compliance with global accounting standards:
- Revenue must reflect actual cash collected
- Taxes must be based on the discounted value
- Invoices remain unchanged and adjustments occur during payment
This transparency is essential for audit trails and financial reporting.
When Should You Use Early Payment Discounts
Final Thoughts
Early Payment Discounts may seem like a small detail, but they play a significant role in cash flow optimization, customer incentives, and accurate financial reporting.
Odoo handles these scenarios intelligently by:
- Applying discounts only during payment
- Adjusting revenue and taxes correctly
- Maintaining clean audit-ready journal entries
Whether you're an accountant, Odoo consultant, or finance manager, understanding this logic is crucial for accurate system configuration and compliance.