diff --git a/erpnext/accounts/doctype/payment_entry/payment_entry.js b/erpnext/accounts/doctype/payment_entry/payment_entry.js
index b5f6a401df4..33cde3ad906 100644
--- a/erpnext/accounts/doctype/payment_entry/payment_entry.js
+++ b/erpnext/accounts/doctype/payment_entry/payment_entry.js
@@ -692,6 +692,8 @@ frappe.ui.form.on('Payment Entry', {
 						c.total_amount = d.invoice_amount;
 						c.outstanding_amount = d.outstanding_amount;
 						c.bill_no = d.bill_no;
+						c.payment_term = d.payment_term;
+						c.allocated_amount = d.allocated_amount;
 
 						if(!in_list(["Sales Order", "Purchase Order", "Expense Claim", "Fees"], d.voucher_type)) {
 							if(flt(d.outstanding_amount) > 0)
@@ -791,10 +793,13 @@ frappe.ui.form.on('Payment Entry', {
 		}
 
 		$.each(frm.doc.references || [], function(i, row) {
-			row.allocated_amount = 0 //If allocate payment amount checkbox is unchecked, set zero to allocate amount
-			if(frappe.flags.allocate_payment_amount != 0){
-				if(row.outstanding_amount > 0 && allocated_positive_outstanding > 0) {
-					if(row.outstanding_amount >= allocated_positive_outstanding) {
+			if (frappe.flags.allocate_payment_amount == 0) {
+				//If allocate payment amount checkbox is unchecked, set zero to allocate amount
+				row.allocated_amount = 0;
+
+			} else if (frappe.flags.allocate_payment_amount != 0 && !row.allocated_amount) {
+				if (row.outstanding_amount > 0 && allocated_positive_outstanding > 0) {
+					if (row.outstanding_amount >= allocated_positive_outstanding) {
 						row.allocated_amount = allocated_positive_outstanding;
 					} else {
 						row.allocated_amount = row.outstanding_amount;
@@ -802,9 +807,11 @@ frappe.ui.form.on('Payment Entry', {
 
 					allocated_positive_outstanding -= flt(row.allocated_amount);
 				} else if (row.outstanding_amount < 0 && allocated_negative_outstanding) {
-					if(Math.abs(row.outstanding_amount) >= allocated_negative_outstanding)
+					if (Math.abs(row.outstanding_amount) >= allocated_negative_outstanding) {
 						row.allocated_amount = -1*allocated_negative_outstanding;
-					else row.allocated_amount = row.outstanding_amount;
+					} else {
+						row.allocated_amount = row.outstanding_amount;
+					};
 
 					allocated_negative_outstanding -= Math.abs(flt(row.allocated_amount));
 				}
diff --git a/erpnext/accounts/doctype/payment_entry/payment_entry.py b/erpnext/accounts/doctype/payment_entry/payment_entry.py
index 40050eecf70..57ad5c6c832 100644
--- a/erpnext/accounts/doctype/payment_entry/payment_entry.py
+++ b/erpnext/accounts/doctype/payment_entry/payment_entry.py
@@ -711,6 +711,8 @@ def get_outstanding_reference_documents(args):
 	outstanding_invoices = get_outstanding_invoices(args.get("party_type"), args.get("party"),
 		args.get("party_account"), filters=args, condition=condition)
 
+	outstanding_invoices = split_invoices_based_on_payment_terms(outstanding_invoices)
+
 	for d in outstanding_invoices:
 		d["exchange_rate"] = 1
 		if party_account_currency != company_currency:
@@ -738,6 +740,50 @@ def get_outstanding_reference_documents(args):
 	return data
 
 
+def split_invoices_based_on_payment_terms(outstanding_invoices):
+	invoice_ref_based_on_payment_terms = {}
+	for idx, d in enumerate(outstanding_invoices):
+		if d.voucher_type == 'Sales Invoice':
+			payment_term_template = frappe.db.get_value(d.voucher_type, d.voucher_no, 'payment_terms_template')
+			if payment_term_template:
+				allocate_payment_based_on_payment_terms = frappe.db.get_value(
+					'Payment Terms Template', payment_term_template, 'allocate_payment_based_on_payment_terms')
+				if allocate_payment_based_on_payment_terms:
+					payment_schedule = frappe.get_all('Payment Schedule',
+						filters={ 'parent': d.voucher_no, 'payment_term': ['is', 'set'] },
+						fields=["*"])
+
+					for payment_term in payment_schedule:
+						payment_term_outstanding = flt(payment_term.payment_amount - payment_term.paid_amount)
+
+						if payment_term_outstanding > 0.5:
+							invoice_ref_based_on_payment_terms.setdefault(idx, [])
+							invoice_ref_based_on_payment_terms[idx].append(frappe._dict({
+								'due_date': d.due_date,
+								'currency': d.currency,
+								'voucher_no': d.voucher_no,
+								'voucher_type': d.voucher_type,
+								'posting_date': d.posting_date,
+								'invoice_amount': flt(d.invoice_amount),
+								'outstanding_amount': flt(d.outstanding_amount),
+								'payment_amount': payment_term.payment_amount,
+								'payment_term': payment_term.payment_term,
+								'allocated_amount': payment_term_outstanding
+							}))
+
+	if invoice_ref_based_on_payment_terms:
+		for idx, ref in invoice_ref_based_on_payment_terms.items():
+			voucher_no = outstanding_invoices[idx]['voucher_no']
+			voucher_type = outstanding_invoices[idx]['voucher_type']
+
+			frappe.msgprint(_("Spliting {} {} into {} rows as per payment terms").format(
+				voucher_type, voucher_no, len(ref)), alert=True)
+
+			outstanding_invoices.pop(idx - 1)
+			outstanding_invoices += invoice_ref_based_on_payment_terms[idx]
+	
+	return outstanding_invoices
+
 def get_orders_to_be_billed(posting_date, party_type, party,
 	company, party_account_currency, company_currency, cost_center=None, filters=None):
 	if party_type == "Customer":