There are three kinds of invoice discounts and they behave differently. Showing the wrong one, or hiding it in the rate, is how an invoice stops matching a quotation.
The three kinds of invoice discounts
| Type | What it is | How to show it |
|---|---|---|
| Line discount | A reduction on one item | A discount column against that line |
| Total discount | A reduction on the whole invoice | A separate line before VAT |
| Settlement discount | Offered for early payment | In the terms, not deducted up front |
Show it, do not bury it
A client who negotiated 10% wants to see 10%. Quietly reducing the rate makes your price list look inconsistent, and the next quotation at the full rate looks like an increase.
Weak: Labour, 3 hours at R198,00
Better: Labour, 3 hours at R220,00, less 10% = R594,00
The second version prices the work correctly, shows the concession, and leaves your rate card intact.
Discount before VAT
A discount reduces the value of the supply, so it is applied before VAT is calculated. Discounting R6,555 including VAT by 10% is not the same as discounting the R5,700 excluding VAT and recalculating. Do the second, and let the VAT fall out of it.
Settlement discounts are different
A settlement discount is conditional. The client only gets it if they pay by the stated date, so you cannot know at invoicing whether it applies.
- Invoice the full amount.
- State the settlement terms on the invoice: for example, 2.5% if settled within 7 days.
- If the client takes it, issue a credit note for the discount.
- If they do not, the full amount stands and nothing further is needed.
Deducting it up front and then chasing the difference when they pay late is the version that causes arguments.
Keep discounts out of the price list
A discount is a decision about one client or one job. If it becomes permanent, change the price rather than discounting every invoice, or you will lose track of what you actually charge.
Common questions
Does a discount affect VAT?
Yes. It reduces the value of the supply, so VAT is calculated on the discounted amount.
Should a discount appear on the quotation?
If it was agreed before the work, yes. The invoice should match the accepted quote.
Can I discount only part of an invoice?
Yes, using a line discount against the specific item.
Apply a discount per line or on the total, and the VAT recalculates with it.
Create your invoiceDisclaimer: This content is for general information only and does not constitute legal, tax, accounting or financial advice. Always confirm important requirements with SARS, the relevant authority or a qualified professional.
