Customer Discounts (applied on the Receive Payments window) and Vendor Discounts (applied on the Pay Bills window) are effective and efficient ways to discount what your customers owe you and what you owe to your vendors.
With vendors, the discounts are even more effective when you use date-driven terms because QuickBooks either will automatically apply the discount or automatically calculate the discount, depending on the settings in your Company-level preferences.
However, there are some drawbacks to using these discounts – and some advantages to using Credit Memos and Bill Credits instead.
Customer and Vendor discounts do not allow you to select an Item. Since you cannot use an Item, QuickBooks will not reflect the discount on item based reports like the Sales by Item Summary report and the Job Profitability Summary/Detail reports. QuickBooks also will not include customer discounts (which are reductions in income) on sales tax reports like the Sales Tax Revenue Summary report and the Sales Tax Liability report. If you use a Credit Memo or Bill Credit, you can either create a separate item to track the discount or you can use regular sales items so the discount will be reflected in the overall profitability for that item.