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Billing Process


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Billing Process

  1. 1. Chapter 1 The Billing/Accounts Receivable/Cash Receipts (B/AR/CR) Process
  2. 2. Learning Objectives <ul><li>Understand relationship between B/AR/CR and its environment </li></ul><ul><li>Understand relationship between B/AR/CR and management problem solving at various levels of the organization </li></ul><ul><li>Become familiar with some of the technology used in implementing the B/AR/CR process </li></ul><ul><li>Achieve a reasonable level of understanding of the logical & physical characteristics of the process </li></ul><ul><li>Gain a foundation level of understanding as to how enterprise systems impact the processing of information in the B/AR/CR process </li></ul><ul><li>Recognize some plans commonly used to control the B/AR/CR process </li></ul>B/AR/CR Process
  3. 3. B/AR/CR Spoke on AIS Wheel <ul><li>In this chapter we spotlight one business process, (B/AR/CR) process. </li></ul><ul><li>We will describe the various users of the (B/AR/CR) process, each having their own view of the enterprise system and enterprise database. </li></ul><ul><li>In addition, we will analyze the process controls related to the (B/AR/CR) process. </li></ul>
  4. 4. Introduction <ul><li>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: </li></ul><ul><ul><li>Support the repetitive work routines of the credit department, the cashier, and the accounts receivable department </li></ul></ul><ul><ul><li>Support the problem-solving processes of financial managers </li></ul></ul><ul><ul><li>Assist in the preparation of internal and external reports </li></ul></ul>
  5. 5. Horizontal View B/AR/CR 1. Shipping department informs the accounts receivable department (billing section) of shipment.
  6. 6. Horizontal View B/AR/CR 2. Accounts receivable department (billing) sends invoice to customer.
  7. 7. Horizontal View B/AR/CR 3. Accounts receivable department (billing) informs general ledger process that invoice was sent to customer.
  8. 8. Horizontal View B/AR/CR 4. Customer, by defaulting on amount due, informs credit department of nonpayment.
  9. 9. Horizontal View B/AR/CR 5. Credit department recommends write-off of the receivable and informs accounts receivable department.
  10. 10. Horizontal View B/AR/CR 6. Credit department, by changing credit limits, informs sales order department to terminate credit sales to customer.
  11. 11. Horizontal View B/AR/CR 7. Accounts receivable department informs general ledger process of write-off.
  12. 12. Horizontal View B/AR/CR 8. Customer makes payment on account.
  13. 13. Horizontal View B/AR/CR 9. Cashier informs accounts receivable department (cash applications section) of payment.
  14. 14. Horizontal View B/AR/CR 10. Cashier informs general ledger process of payment.
  15. 15. CSS: Customer Self-Service Systems <ul><li>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 </li></ul><ul><ul><li>ATMs, Speedpass, Automated telephone systems </li></ul></ul><ul><li>A major extension: interconnection of CSS systems with enterprise systems </li></ul><ul><ul><li>In some cases, customers can check their orders during the manufacturing process or check inventory before placing orders. </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><li>Why are companies so interested in customer self-service systems? </li></ul><ul><ul><li>The payback on such systems is huge </li></ul></ul><ul><ul><li>Reduction of staffing needs for call centers is particularly beneficial </li></ul></ul>
  16. 16. Digital Imaging Processing Systems <ul><li>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: </li></ul><ul><ul><li>labor costs for filing </li></ul></ul><ul><ul><li>costs of physical storage space and structures necessary for storing paper-based files. </li></ul></ul>
  17. 17. Cash Receipts Management <ul><li>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. </li></ul><ul><li>Having the B/AR/CR process produce invoices automatically helps ensure that invoices are sent to customers shortly after the goods have been shipped. </li></ul><ul><li>Float , when applied to cash receipts, is the time between the customer tendering payment and the availability of good funds. </li></ul><ul><li>Good funds are funds on deposit and available for use. </li></ul>
  18. 18. Cash Receipts Management <ul><li>The following procedures are designed to reduce or eliminate the float associated with cash receipts: </li></ul><ul><ul><li>Checks </li></ul></ul><ul><ul><ul><li>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 </li></ul></ul></ul><ul><ul><li>A charge card or credit card </li></ul></ul><ul><ul><ul><li>A third party, for a fee, removes from the collector the risk of noncollection of the account receivable. </li></ul></ul></ul><ul><ul><ul><li>The retailer submits the charges to the credit card company for reimbursement. </li></ul></ul></ul><ul><ul><ul><li>The credit card company bills the consumer </li></ul></ul></ul><ul><ul><li>A debit card </li></ul></ul><ul><ul><ul><li>Authorizes the collector to transfer funds electronically from the payer’s to the collector’s balance. </li></ul></ul></ul><ul><ul><ul><li>Some retailers find the notion of direct debit attractive because it represents the elimination of float. </li></ul></ul></ul>
  19. 19. Other solutions to float problems <ul><li>Electronic funds transfer </li></ul><ul><li>Automated clearing house </li></ul><ul><li>Lockbox and electronic lockbox services </li></ul><ul><li>Electronic checks </li></ul><ul><li>Electronic cash </li></ul><ul><li>See Technology Summary 11.1 </li></ul>
  20. 20. The Fraud Connection <ul><li>Many result from improper segregation of duties </li></ul><ul><ul><li>Custody of cash </li></ul></ul><ul><ul><li>Recording of cash transactions </li></ul></ul><ul><li>Lapping </li></ul><ul><ul><li>Employee pockets cash/check received from customer A </li></ul></ul><ul><ul><li>So that customer A doesn’t complain about missing payment, employee credits customer B’s payment to A’s account </li></ul></ul><ul><ul><li>So that customer B doesn’t complain about missing payment, employee credits customer C’s payment to B’s account </li></ul></ul><ul><ul><li>This scheme comes unraveled when the employee runs out of hours in the day </li></ul></ul>
  21. 21. B/AR/CR Context Diagram
  22. 22. B/AR/CR Level 0 DFD
  23. 23. B/AR/CR Process Diagram 1 Perform Billing
  24. 24. Sample SAP Invoice Data Screen
  25. 25. B/AR/CR Process Diagram 2 Manage Customer Accounts
  26. 26. B/AR/CR Process Diagram 3 Receive Payment
  27. 27. Data Descriptions in B/AR/CR <ul><li>A/R master data </li></ul><ul><ul><li>The accounts receivable master data is a repository of all unpaid invoices issued by an organization and awaiting final disposition. </li></ul></ul><ul><ul><li>Two types of accounts receivable systems exist: </li></ul></ul><ul><ul><li>(1) B alance-only system </li></ul></ul><ul><ul><li>(2) O pen item system </li></ul></ul>
  28. 28. Balance-only system <ul><li>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. </li></ul><ul><li>Each month, unpaid current balances are rolled into the past-due balances. </li></ul><ul><li>Electric and gas utility companies typically use balance-only systems. </li></ul>
  29. 29. Open-item system <ul><li>The open-item system appropriate in situations where the customer typically makes payments for specific invoices when those invoices are due. </li></ul><ul><li>In the AR master data, each record consists of individual open invoices, to which payments and adjustments are applied. </li></ul><ul><li>On the customer statement of account, a “lump sum” beginning balance is not shown. </li></ul><ul><li>Instead, all invoices that are yet to be settled continue to be listed, along with payment details. </li></ul><ul><li>Also, each open invoice is grouped by aging category and aged individually. </li></ul><ul><li>Monthly, or at specified times, the customer accounts are aged and an aging schedule is printed. </li></ul>
  30. 30. Data Descriptions in B/AR/CR <ul><li>Sales event data </li></ul><ul><ul><li>one or more invoice records (details contained in invoice data) </li></ul></ul><ul><li>A/R adjustments data </li></ul><ul><ul><li>write-offs, estimated doubtful a/c, sales returns, etc. </li></ul></ul><ul><ul><li>Journal voucher #, trans. code, authorization </li></ul></ul><ul><li>Cash receipts data </li></ul><ul><ul><li>details of customer payments </li></ul></ul>
  31. 31. E-R Diagram (Partial) for B/AR/CR
  32. 32. Types of Billing Systems <ul><li>Post-billing system </li></ul><ul><ul><li>Invoices are prepared after goods are shipped and shipping notice compared to sales order notice </li></ul></ul><ul><ul><li>There may be a delay between receiving the order and shipping </li></ul></ul><ul><ul><li>Post-billing is assumed in Ch. 12 diagrams </li></ul></ul><ul><li>Pre-billing system </li></ul><ul><ul><li>Invoice prepared upon receipt of order (after inventory and credit checks) </li></ul></ul><ul><ul><li>There is little or no delay between receiving order and shipping </li></ul></ul>
  33. 33. Billing Function System Flowchart
  34. 34. Control Matrix for Billing Process
  35. 35. Cash Receipts System Flowchart
  36. 36. Cash Receipts Control Matrix