The Billing/Accounts

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Chapter 1
The 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/CR Process
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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
• Support the repetitive work routines of the
  credit department, the cashier, and the accounts
  receivable department
• Support the problem-solving processes of
  financial managers
• Assist in the preparation of internal and
  external reports

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Horizontal View B/AR/CR
1. Shipping department informs the accounts
receivable department (billing section) of
shipment.
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Horizontal View B/AR/CR
2. 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 organizations 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 payers to the
  collectors 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 doesnt complain about missing
  payment, employee credits customer Bs payment to
  As account
• So that customer B doesnt complain about missing
  payment, employee credits customer Cs payment to
  Bs 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
  customers 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