billing process

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1 Chapter 1 The Billing/Acco unts Receivable/ Cash Receipts (B/AR/CR)

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Page 1: Billing Process

1

Chapter 1The

Billing/Accounts

Receivable/Cash Receipts

(B/AR/CR)

Process

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Learning Objectives• Understand relationship between B/AR/CR

and its environment• Understand relationship between B/AR/CR

and management problem solving at various levels of the organization

• Become familiar with some of the technology used in implementing the B/AR/CR process

• Achieve a reasonable level of understanding of the logical & physical characteristics of the process

• Gain a foundation level of understanding as to how enterprise systems impact the processing of information in the B/AR/CR process

• Recognize some plans commonly used to control the B/AR/CR process

B/AR/CRProcess

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B/AR/CR Spoke on AIS Wheel• In this chapter we

spotlight one business process, (B/AR/CR) process.

• We will describe the various users of the (B/AR/CR) process, each having their own view of the enterprise system and enterprise database.

• In addition, we will analyze the process controls related to the (B/AR/CR) process.

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Introduction

• The billing/accounts receivable/cash receipts (B/AR/CR) process is an interacting structure of people, equipment, methods, and controls designed to create information flows and records that accomplish the following:1. Support the repetitive work routines of the credit

department, the cashier, and the accounts receivable department

2. Support the problem-solving processes of financial managers

3. Assist in the preparation of internal and external reports

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Horizontal View B/AR/CR1. Shipping department informs the accounts receivable department (billing section) of shipment.

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Horizontal View B/AR/CR2. Accounts receivable department (billing) sends invoice to customer.

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Horizontal View B/AR/CR

3. Accounts receivable department (billing) informs general ledger process that invoice was sent to customer.

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Horizontal View B/AR/CR

4. Customer, by defaulting on amount due, informs credit department of nonpayment.

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Horizontal View B/AR/CR

5. Credit department recommends write-off of the receivable and informs accounts receivable department.

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Horizontal View B/AR/CR

6. Credit department, by changing credit limits, informs sales order department to terminate credit sales to customer.

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Horizontal View B/AR/CR

7. Accounts receivable department informs general ledger process of write-off.

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Horizontal View B/AR/CR

8. Customer makes payment on account.

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Horizontal View B/AR/CR

9. Cashier informs accounts receivable department (cash applications section) of payment.

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Horizontal View B/AR/CR

10. Cashier informs general ledger process of payment.

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CSS: Customer Self-Service Systems• CSS is an extension of CRM that allows a customer to

complete an inquiry or perform a task without the aid of the organization’s employees– ATMs, Speedpass, Automated telephone systems

• A major extension: interconnection of CSS systems with enterprise systems – In some cases, customers can check their orders during the

manufacturing process or check inventory before placing orders. – Some of the more advanced systems also allow customers to check

production planning for future manufacturing to determine if goods will be available when they are needed.

• Why are companies so interested in customer self-service systems? – The payback on such systems is huge – Reduction of staffing needs for call centers is particularly beneficial

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Digital Imaging Processing Systems

• Because of the quantity of paper documents that typically flow through the B/AR/CR process, the ability to quickly scan, store, add information to, and retrieve documents can significantly reduce:– labor costs for filing – costs of physical storage space and structures

necessary for storing paper-based files.

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Cash Receipts Management• In the billing function, the goal is to get invoices to

customers as quickly as possible; with the hope of reducing the time it then takes to obtain customer payments.

• Having the B/AR/CR process produce invoices automatically helps ensure that invoices are sent to customers shortly after the goods have been shipped.

• Float, when applied to cash receipts, is the time between the customer tendering payment and the availability of good funds.

• Good funds are funds on deposit and available for use.

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Cash Receipts Management• The following procedures are designed to reduce or

eliminate the float associated with cash receipts:– Checks

• High-speed electronic equipment is able to read the magnetic ink character recognition MICR code and sort checks at speeds approaching 100,000 checks per hour

– A charge card or credit card • A third party, for a fee, removes from the collector the risk of

noncollection of the account receivable. • The retailer submits the charges to the credit card company for

reimbursement. • The credit card company bills the consumer

– A debit card • Authorizes the collector to transfer funds electronically from the

payer’s to the collector’s balance. • Some retailers find the notion of direct debit attractive because it

represents the elimination of float.

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Other solutions to float problems

• Electronic funds transfer

• Automated clearing house

• Lockbox and electronic lockbox services

• Electronic checks

• Electronic cash

• See Technology Summary 11.1

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The Fraud Connection• Many result from improper segregation of duties

– Custody of cash– Recording of cash transactions

• Lapping– Employee pockets cash/check received from customer A– So that customer A doesn’t complain about missing

payment, employee credits customer B’s payment to A’s account

– So that customer B doesn’t complain about missing payment, employee credits customer C’s payment to B’s account

– This scheme comes unraveled when the employee runs out of hours in the day

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B/AR/CR Context Diagram

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B/AR/CR Level 0

DFD

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B/AR/CR Process Diagram 1Perform Billing

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Sample SAP Invoice Data Screen

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B/AR/CR Process Diagram 2Manage Customer Accounts

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B/AR/CR Process Diagram 3Receive Payment

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Data Descriptions in B/AR/CR

• A/R master data– The accounts receivable master data is a

repository of all unpaid invoices issued by an organization and awaiting final disposition.

– Two types of accounts receivable systems exist:

– (1) Balance-only system– (2) Open item system

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Balance-only system

• In a balance-only system, AR records show a customer’s current balance due, past-due balance, and the finance charges and payments related to the account.

• Each month, unpaid current balances are rolled into the past-due balances.

• Electric and gas utility companies typically use balance-only systems.

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Open-item system

• The open-item system appropriate in situations where the customer typically makes payments for specific invoices when those invoices are due.

• In the AR master data, each record consists of individual open invoices, to which payments and adjustments are applied.

• On the customer statement of account, a “lump sum” beginning balance is not shown.

• Instead, all invoices that are yet to be settled continue to be listed, along with payment details.

• Also, each open invoice is grouped by aging category and aged individually.

• Monthly, or at specified times, the customer accounts are aged and an aging schedule is printed.

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Data Descriptions in B/AR/CR

• Sales event data– one or more invoice records (details

contained in invoice data)• A/R adjustments data

– write-offs, estimated doubtful a/c, sales returns, etc.

– Journal voucher #, trans. code, authorization• Cash receipts data

– details of customer payments

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E-R Diagram (Partial)

for B/AR/CR

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Types of Billing Systems

• Post-billing system– Invoices are prepared

after goods are shipped and shipping notice compared to sales order notice

– There may be a delay between receiving the order and shipping

– Post-billing is assumed in Ch. 12 diagrams

• Pre-billing system– Invoice prepared upon

receipt of order (after inventory and credit checks)

– There is little or no delay between receiving order and shipping

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Billing Function System Flowchart

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Control Matrix for

Billing Process

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Cash Receipts System

Flowchart

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Cash Receipts Control Matrix