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Chapter 7 – Accounts Receivable
Accounts Receivable Overview
You derive the income in your business from your customers. The Accounts Receivable module lets you manage your customers, and is therefore a vital part of your enterprise.
We divide this overview into the following sections:
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Accounts Receivable Elements
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Accounts Receivable Processing
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Accounts Receivable Reports
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Accounts Receivable Opening Balances
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Accounts Receivable Add-on Modules
Accounts Receivable Elements
Accounts Receivable contains many elements. Some of these elements are common to other modules.
Ageing Periods
You design the terms and ageing periods that you use in the company. These could be monthly, weekly, and so on. Ageing periods determine:
Customer Payment Terms
You specify for each customer the number of ageing periods within which the customer should pay you. If a customer is overdue in this respect, you can charge the customer interest and/or warn agents when they invoice the customer.
Age Analysis
When you enter a customer transaction, the system allocates it to a financial period according to the financial calendar you set up in the general ledger module.
The transaction will never move from that financial period. However, the ageing period into which the transaction fits adjusts continuously. The system never stores aged balances. Instead, it calculates aged balances dynamically when they are required. The ageing calculations are relative to the transaction's date, the ageing method, and the computer system date.
There are two ageing methods:
Date of Invoice
The system uses these terms to calculate aged balances for customers. The balances display on the customer statement and on the age analysis report.
Date of Statement
The system calculates the age of the invoice relative to the invoice date.
The system calculates the age of the invoice relative to the date on which you print the statement.
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For example, you create an invoice on 15 March:
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If you age by date of invoice, the invoice is current until 15 April. From 16 April, for the next 30 days, the invoice is in the 30-day ageing period, and so on.
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If you age by date of statement, and you produce a statement on 25 March, the invoice is current until
25 April. From 26 April, for the next 30 days, the invoice is in the 30-day ageing period, and so on.
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In both these examples, the system uses the computer date to calculate the ageing. If, for example, the computer date were June 4, the invoice would be in 60 days whichever method you use.
Accounts Receivable Transaction Types
Transaction types are critical elements of your processing. You enter all transactions via transaction types.
In addition, all transactions the system generates, such as interest or discount transactions, require a transaction type. The transaction type determines the transaction's sign (whether it is a debit or credit), whether it contains tax, and so on.
You are also allowed to link transaction types to tax groups for reporting purposes.
All accounts receivable transactions reflect in the general ledger. Each accounts receivable transaction you enter therefore requires a debit and a credit general ledger transaction. In the transaction type, you enter the general ledger accounts for these transactions. This means that the general ledger transactions occur in the background, with no input required by agents who enter the accounts receivable transaction.
Storing this information in the transaction type makes actual transaction processing a trivial data entry process. Very little knowledge or experience is required in order to enter the transactions, because the transaction type setup determines what fields agents need to enter.
However, you can override this and allow agents to enter a general ledger account, and even to split the transaction over many general ledger accounts.
You can link one transaction type to another. This is required, for example, in discount processing. When you process a receipt from a customer and you give the customer a discount, the system produces two transactions, one for the customer receipt, and one for the discount. The linked transaction type lets you enter both transactions at once, and handles all general ledger and tax processing automatically.
Transaction types also let you group similar transactions together. This is useful for reporting, because you can view similar transactions together. For example, you can create one or more transaction types for exceptional circumstances such as writing off bad debts. If you do this, you can easily extract these transactions and review them.
You should spend some time deciding on how many transaction types you need. If you create too few types, then transaction enquiries will contain so many transactions the process becomes very tedious. If you create too many types, transaction enquiries will yield too few transactions to be meaningful.
The system ships with many standard transaction types set up. You should use these transaction types unless you require specialised reporting or processing.
Settlement Discounts
You can define settlement terms. These let you specify a settlement, or early payment discount, based on payment for an invoice within a time limit you define.
You define the time limit as a number of days relative to either the invoice date or the next statement date.
You can create a default message that appears on the invoice, so that the customer clearly understands the terms of the discount.
When you process a payment from the customer, you can link to a list of invoices with discounts you offered the customer, that fall within the payment date. When you select an invoice, the system enters the discount automatically.
Accounts Receivable Groups
Accounts receivable groups let you group customers for better reporting purposes. For example, you could use groups to differentiate retail customers from wholesale customers, or dealers from end users.
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You can use the group code to sort and filter customer records in various places in the system. For example, you can use the group to create sophisticated date-driven volume discounts or prices that apply to that group as a whole. We look at this later in this overview.
If you wish to differentiate these groups in the general ledger, you have the option of specifying an accounts receivable general ledger account per account group.
Just about every accounts receivable report allows you to range on groups. If you create groups that accurately reflect the way you categorise your customers, the group structure will make it easier for you to manage your customer database.
Sales Representatives
You can control commissions for sales staff by means of sales codes. You can also use this code for other groupings. You can specify up to five bands, or levels, of amounts and commissions.
The system calculates the commission by using each percentage on an incremental basis. For example, the commission structure is set up as:
Sales Value Percentage Commission
10000 10%
20000 50%
The sales value is 25000. The system calculates the commission as follows:
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The commission starts at 10000. Therefore, commission is due on 15000 of the 25000 sales value – the first 10000 does not accrue commission.
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The first 10000 of the 15000 that is subject to commission earns 10% commission, in other words
1000.
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The remaining 5000 of the 15000 that is subject to commission earns 15% commission, in other words
750.
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The total commission is therefore 1000 + 750 = 1750.
You can specify for each inventory item whether it is subject to commission. You can also specify a sales code per sales order/invoice as a whole, or per invoice line.
The use of sales representatives is optional.
Areas
You create area codes that you attach to customer records. You can then use the area code to sort or filter various reports. Besides using these codes for geographic areas, you can of course use the code for any other type of grouping. The use of areas is optional
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People
The people database lets you keep track of key people in your customer's company.
Sometimes you deal with one person only in each company. Other times, you may deal with many people in the same company. You can create a record for each person you have contact with, and you link that person to his or her company. You can also link a person to more than one company (customer). For example, you may have a consultant who provides support and training for your products to many of your customers.
The use of people is optional.
Customers
The customer master file is the heart of the Accounts Receivable module. All processing revolves around customers.
The customer record contains links to most of the elements we have looked at so far. In this section, we cover a few other key fields on the customer master file.
Open Item and Balance Brought Forward Processing
You process sales transactions for customers, and they pay you. You have to match all debits and credits for each account. These are usually invoices and receipts. There are two ways to do this:
Open Item With this method, you allocate customer credits to debits yourself.
Balance Forward
With this method, the system can allocate credits to debits automatically, by matching the oldest debits to the oldest credits.
The disadvantage of open item is that it is extra work. You have to allocate each invoice to a receipt. So, what do you get for the extra work?
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If you have a customer who queries many invoices, you maintain a record of queried transactions by not allocating receipts to them. Transactions continue to display on the customer's statement until you match them.
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Your age analysis is accurate. If, for example, a customer queries an invoice with you, and the query takes a few months to process, the invoice amount will appear as an older, unpaid amount.
Note that the distinction between open item and balance forward is not hard and fast. On balance forward accounts, although you usually allocate from oldest, you can allocate individual transactions. On open item accounts, although you usually allocate manually, you can match debits and credits automatically from oldest.
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Pricing Structure
The system has powerful features that let you control selling prices:
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You can create and name an unlimited number of separate selling prices for each inventory item. On the customer side, you link a customer to one of these prices. If you use the Multi-Currency add-on module, you can create price lists in other currencies.
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You can enter a discount percentage on the customer record. This discount will apply to sales invoices as a whole. The automatic discount defaults on each invoice and you can edit or delete it.
If you need more flexibility and control of prices, at a group or even a customer level, you can purchase the
Pricing Matrix add-on module, which gives you the following capabilities:
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You can create volume discount contracts. These pricing structures exist for groups or individual customers and inventory items:
» You create a contract per customer or per accounts receivable group.
» Within each contract, you can create an unlimited number of contract lines. Each line can be for an inventory item or for an inventory group.
» A contract line has an effective date and an expiry date.
» A contract line can have multiple lines representing item quantities. For each quantity, you can enter either a selling price or a percentage discount on the customer's selling price.
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You can create a discount matrix, which works as follows:
» You create a two dimensional matrix, with rows representing customers and columns representing inventory items. The cells of the matrix contain discount percentages.
» You assign a row of the matrix to a customer or a customer group, and a column of the matrix to an inventory item or an inventory group.
» When you process a sale of an inventory item to a customer, the system puts the customer's row and the inventory item's column together and derives the discount percentage to apply.
Note that these discounts can all apply at once. If more than one discount applies, the system adds them together on invoice lines.
Multiple Delivery Addresses
You can create an unlimited number of delivery addresses for each customer account. You set which delivery address is the default. When you invoice a customer, the system defaults to the default delivery address, but you can choose another one.
The advantage of using multiple delivery addresses is that you can invoice a single customer and produce a single statement for that customer, even if they have different locations such as branches.
The disadvantage of using multiple delivery addresses is that you cannot analyse branch sales, or perform branch enquiries. We would therefore recommend using multiple delivery addresses for relatively low volume customers.
For high volume customers, you should consider using the Linked Accounts add-on module, which we look at next.
Multi-Currency add-on Module
If you use the Multi-Currency add-on module, you can create foreign customers. You can process the customer's transactions in their currency. The system tracks foreign and home currency values for every transaction, and calculates any foreign exchange profit or loss when the customer pays you.
Putting an Account on Hold
You may have a customer who falls behind with payments, or you may have other issues with a customer.
In this situation, you can put a customer on hold. This prevents agents from invoicing the customer, although you can still process credit transactions for them. You can also use this facility should a customer cease to do business with you. You cannot delete the customer for some time, as they have transactions.
By putting the customer on hold, you prevent agents from invoicing them in error.
