Getting Started with Receivables

The primary purpose of your company's receivables is to produce accurate statements for billing customers. Understanding the billing process, statement format choices, and account types is very important. Making informed choices helps smooth the billing and payment process for both your company and customers.

Managing Receivables for Multiple Locations

If your business has multiple locations, you need to consider how to handle receivables processing using this software. Some companies with more than one location consider themselves a single entity with the exception of inventory; others prefer to operate more like independent companies while sharing some common information. In most cases, this software assumes that receivables are shared amongst all branch locations unless your company takes steps to keep them separate.

If branch identity is important and/or you want to assign receivables customers by branch, you can do this; however, there are some considerations:

•Customers can individually be assigned to specific branch locations or branch lists (a group of branch locations, such as a division) for Point of Sale (POS Branch), Receivables (AR Branch), and Reporting (Report Branch) purposes. See Filtering Statements using Branch Settings for the latest on using these settings.

•Assigning a customer to an AR Branch limits ALL Receivables activity to the branch (or branches within the assigned list).

•If a customer is assigned to a specific AR Branch (does not apply to lists), the branch will also determine the branch logo (if a matching logo exists) and branch address (optional) used for statement documents.

•Changing the AR Branch location to a specific branch affects all statement documents viewed from the software or delivered via printing, Email, or fax after the change.

•When no branch is specified for the customer, the "master" branch set in Parameters (Software tab) is used for statement documents.

•AR Branch is not considered for statement delivery. If you are printing statements, and want to do so by branch, you would need to use account number ranges or prefixes to indicate the branch by customer. All branches are included when delivery of statements is done regardless of any branch assignment (statements are not printed in branch order unless you specifically use some account numbering scheme or prefix to do this).

Overall totals for charge sales/returns and cash sales/returns are maintained for each branch location, so this may be an alternative to separate receivables depending upon your situation. In cases where locations operate financially more like independent businesses, you can consider installing a separate database and software instance to ensure this; however, if you do, there is no way to share data between sites.

Receivables parameters determine the "pay by" and "discount" date printed on the statements (providing an early or on-time payment discount to customers is optional). The "pay by" or "due" date can be the same or different than the date on which billing is processed. Discounts are calculated at time of invoicing (sale) or return. Statement discounts are never calculated based on balances and discounts are not recalculated at time of billing. Billing does move the amount for each customer's "current" discount into their "statement" discount and clears the "current" discount to zero for the beginning of the new cycle.

So that the software reflects the customer's payment and latest balances, payments should be entered promptly. Payments immediately increase a customer's available credit; however, they don't immediately reduce the customer's balances. Payments can be processed in three (3) different areas:

After the billing process completes, statement documents must be printed and/or delivered electronically using the Statements transaction located on the Receivables menu. This is a manual process and must be done by someone at your company. It's important to realize that at this point, the statement documents already exist and most new activity won't affect how they print (except for certain account changes such as statement message or delivery options). Most companies will do their statement delivery the same or following business day after the billing process completes.

Understanding Monthly Billing & Aging

Monthly billing is an automated process that usually occurs in the early morning on a date designated by your company. For example, if your company schedules its billing process for the 1st of each month, the transactions from the 1st would not be included in the period being closed but would be recorded for the new period. In most cases where the billing process is scheduled for the early morning, the resulting statement document dates are set to the prior day since that would be the last possible day of activity included on the statement.

The monthly billing follows this process:

• You process payments manually using the Receive on Account option in Point of Sale > Payments or use the Payment Entry option in Receivables > Payment Entry to process incoming checks in bulk.

• You post all open payments and credits to ensure that customers accounts are current. In some cases, payments and credits post automatically to Balance Forward accounts.

• The application increments the billing cycle by one so that new and existing transactions can be handled based upon their age.

• The application can apply finance charges based on the parameters and settings you choose. Finance charges can be optionally done on a different date.

• The application creates the statement documents. (Statements arenot delivered to customers automatically).

• The application ages the balances.

Your company chooses a date and time on which certain billing related actions are processed each month. This processing is usually done on the same date each month. At the designated date and time, an automatic posting is processed, account balances are aged, statement document data is created, and usually finance charges are calculated (finance charges may be optionally calculated on a different date in some cases and upon request). Statement (early/on-time payment) discounts are not calculated at this time. Discounts are immediately updated at time of invoicing (or return) and are never based on the customer's balance(s).

All accounts maintain balances whether they are balance forward or open item. "Job Billing" type accounts maintain balances, discounts, and finance charges at the job level whereas "Account" (aka. consolidated) billing type accounts only maintain overall balances, discounts, and finance charges including all jobs. Most transactions, including open items, are assigned a billing cycle number which is incremented monthly. This is how "item" aging is determined. Balances are updated by activity such as sales, returns, payments, adjustments, posting, and finance charge assessment. Separate "finance charge" balance(s) are maintained, however. Finance/Service charges are never included as a part of any past due balances.

The automated posting processed at time of billing applies open credits (including payments, adjustments, and memos) to Balance Forward type accounts. In addition, this process applies payments and other credits to Open Item accounts, but only IF the sum total of the credits would result in the exact pay-off the account. By choosing "open item" for an account, you are indicating that the customer pays by specific invoice rather than by their balance due, and doing so typically required manual posting. For these reasons, automated posting won't ever cause a "net" credit balance on open item accounts, but can do this when a balance forward customer has overpaid or was eligible for discount not taken. Automated posting precedes any aging of balances.

Monthly billing generates the data for statement documents, but does not deliver those documents automatically.

Most settings affecting statement format and account function are located under the Receivables folder tab in the Account database. The majority of settings are customer-specific rather than global. Before your company's live date, here are a few things to consider and understand:

Considering Customer Needs

To avoid confusion and problems, a primary focus should be how to best match a statement and account format with the needs of customers. Here are some things to consider regarding customer preferences:

•Does the customer pay specific invoices or just send a check for their balance?

•Does the customer send separate payment for each job?

•Does the customer want a separate statement or aging for each job?

•Does the customer prefer re-prints of their invoices each billing?

The answers to these questions can vary from customer to customer, and this is fine. Most settings related to statements are controlled at the customer level, so there's no requirement for statement formats to be the same for all accounts.

Considering Your Company's Needs

Another important consideration to make regards your company's needs.

•How Easy is it to Manage?

For the most part, balance forward billing is the easiest to manage (it takes far less time and resources, and it's easier for customers to understand). Balance forward works well with most customers, but not all. It's usually ok to use balance forward and open item types concurrently; however, it's best to carefully consider and assign the proper types to each account to begin with.

•How Complicated is it to Explain to Customers?

Customers will invariably have questions especially when anything regarding their billing changes. One of the biggest challenges in explaining billing to customers has to do with statement (early/on-time payment) discounts. Statement discounts can be complicated especially when you consider "net" (non-discountable) items in the mix. It's important for both you and your customers to understand that discounts are never calculated on balances. For this reason, they will rarely, if ever, match the same percentage of the customer's total current balance. Discounts are calculated at time of sale (or return), may or may not include sales tax, and won't be calculated for any "net" (non-discountable) items. Proving a discount to a customer can be tricky for these reasons. The topic "Discounts" offers more detailed explanations as well as suggestions on how to keep discounts simpler.

For companies who mail all or most of their statements, the amount of paper and mailing costs can be a concern for some. A chart is included later in this topic that compares the various statement-account options and the amount of potential paper each would produce.

Other Considerations

If your business is in an area that offers or requires "pay-when-paid" sales tax reporting, please read the following:

Pay When Paid Sales Tax Reporting

Some areas offer pay-when-paid sales tax programs. These programs allow businesses to base their sales tax payments upon the tax that they have received payment for rather than what they have charged (but not necessarily received payment toward). Over time, the same tax amounts will be paid; however, with a "pay-when-paid" plan, the tax amount a business pays is more closely tied to their cash flow.

The amount of time tax payments can be delayed is typically limited (by a year, for example). If a business doesn't receive payment by the designated cut-off time, any unpaid tax usually must be paid regardless. Delayed tax programs (pay-when-paid) only benefit companies who maintain their own receivables. The tax on credit card transactions as well as immediate payments such as checks and cash are not delayed.

Ok, why is this important?

To participate in a pay-when-paid program, a business must be able to identify when sales tax is paid on receivables. Doing so requires that details regarding customer receivables be maintained. For this reason, companies who choose or are required to participate in pay-when-paid programs must use open-item accounts exclusively!

Balance forward accounts maintain absolutely no details regarding sales tax, they just keep a record of the customers' overall balances. Invoice documents for balance forward accounts are not marked paid when balances are reduced by payments.