Best Practices for GL Posting

Sherry: Hello, and welcome to all our viewers on CFO Insights. I am Sherry, a financial technology consultant at Hyperbots, and I'm very excited to have Michael Van Paten here with me, who is a seasoned executive with expertise in strategic planning, M&A, and financial optimization, driving business growth through innovative solutions and effective leadership. Thank you so much for joining us today, Michael.

Michael VanPatten: Thank you for having me.

Sherry: Today we'll be talking about best practices for GL posting net versus gross payment values and discount headings. And to get us started, Michael, what is the key difference between posting transactions based on the gross invoice value versus the net payment after discounts?

Michael VanPatten: Well, posting based on gross invoice values means recording the full amount before any early discount is applied, whereas posting the net basis will help you with the actual cash flow after discounts. The choice affects how expenses are recognized and impacts financial reporting and analysis. For example, an invoice for $100,000 with a 2% early discount—gross posting would be 100,000, while net would be 98,000. What's nice about doing the gross first is that you can see what you actually spent. But the 2% discount is something that you've earned by doing something—paying early, or whatever the rules of the engagement are.

Sherry: And should companies maintain separate GL expense heads for the discount versus the gross invoice amount?

Michael VanPatten: Yes, best practices suggest maintaining separate GL accounts—one for the gross invoice expense and another for recording the discounts received. This separation enhances transparency, allows for detailed tracking of discount benefits, and supports more accurate financial analysis. For instance, you might have a cost of goods sold, which is the gross, and then a purchase discounts account that reconciles the net payment. This helps with tracking purposes, ensuring that discounts are recorded as a positive adjustment on the expense P&L.

Sherry: And how do various companies typically handle GL postings for early payment discounts?

Michael VanPatten: Companies adopt different approaches. Some post the full invoice value and then record the discount as a separate credit entry, while others directly post the net payment and separately track the discounts in a contra-expense account. Large organizations often maintain detailed sub-ledgers for tracking discounts to improve audit trails and financial analysis. The key is consistency and clarity in financial reporting. Again, it’s easier for audits to review the discounts taken from the gross amount of the invoice.

Sherry: And what are the benefits of posting the net amount versus the gross invoice amount in the general ledger?

Michael VanPatten: Posting net payments simplifies cash flow reporting and reflects the actual cash outflow, making it easier to analyze operational efficiencies. However, posting the gross amount along with a separate discount entry provides more transparency, allowing management to see both overall expenses and the savings achieved by accepting discounts. For example, a CFO can evaluate supplier performance by reviewing the discount account separately, ensuring that vendors or suppliers are helping to reduce costs by offering early payment discounts.

Sherry: And in your experience, what is considered best practice for GL posting when early payment discounts are involved?

Michael VanPatten: Best practices typically involve recording the gross invoice amount in one GL account and the discount received in a separate contra-expense account. This method maintains the full cost context while clearly showing the savings. It enables more detailed financial analysis, supports accurate cost tracking and auditing, and ensures that the net expense reflects true cash outflow after discounts. This also allows management to track AP objectives to save money.

Sherry: And how does Hyperbots Payments AI Copilot assist with GL postings related to early payment discounts?

Michael VanPatten: Hyperbots Payments AI Copilot automates the extraction of invoice data and discount terms from documents. It then matches these against the approved payment schedule and ensures that transactions are recorded accurately in the GL. The system posts the gross invoice amount and automatically creates the corresponding credit entry for the discount received, aligning with best practices. This automation reduces manual errors and streamlines financial reporting.

Sherry: And how would you ensure consistency in GL postings for discounts across different departments and vendors?

Michael VanPatten: We enforce a standardized chart of accounts and robust internal controls that mandate the use of designated GL codes for gross expenses and discount entries. Regular audits and reconciliation processes, along with an integrated ERP system, help ensure that all transactions are consistently posted according to established policies.

This consistency is crucial for accurate financial analysis and effective decision-making. Again, department objectives to reduce costs can be tracked.

Sherry: What impact does proper GL posting have on overall financial reporting and decision-making?

Michael VanPatten: Proper GL posting provides a clear picture of both total expenditures and the benefits gained from early payment discounts. This transparency enables more accurate cost management, better cash flow forecasting, and enhanced vendor performance analysis. By understanding the true net cost of purchases, decision-makers can optimize payment strategies and negotiate better terms with vendors, ultimately supporting strategic financial planning. This process can also improve accuracy by avoiding human coding errors.

Sherry: Thank you so much for joining us today, Michael. We had such an insightful discussion, and I look forward to the next one.

Michael VanPatten: Thank you. I appreciate you having me. Have a nice day.