The SalesCollection Business Process

1
Chapter 6

• The Sales/Collection Business Process

2
Chapter Objectives

• Identify the characteristics of the traditional
  sales/collection process and related IT
  applications.
• Describe weaknesses in the traditional
  sales/collection process and IT application
  architecture.
• Develop a REAL model of the sales/collection
  process.
• Suggest ways to improve the sales/collection
  process and its IT application.

3
The Purpose of the Sales/Collection Process

• The sales/collection process is a series of
  operating events that
• collectively serve to attract customers,
• help customers select goods and services,
• deliver the goods and services requested, and
• collect payments for the goods and services.

• The process should
• Minimize the amount of time between the selection
  of products and services and the collection of
  cash.
• Minimize the amount of cash that is not collected
  from customers for goods and services provided.
• Structure product quality and price to balance
  customer value and organization profitability.

4
An Overview of the Traditional Sales/collection
Process

• In a manual sales/collection process, paper is
  used
• as the primary means to capture and store
  business data and communicate information to
  information customers
• as the audit trail for documenting the process.
• to store duplicate data as data is processed
  across various departments (e.g., the Sales Order
  Department, the Shipping Department, the Billing
  Department, and the Warehousing Department).

• to communicate authorizations between departments
  and to external parties.
• Files of source documents and journals are often
  called transaction files while master files
  include the subsidiary ledgers, general ledger,
  and control accounts used by units within the
  Accounting Department (e.g., accounts receivable,
  inventory control, and general ledger).

5
Take Order

• The customer order typically includes data about
  the customer, where to ship the goods, the items
  the customer wants to order, and payment terms.
• The company receives the order and checks the
  customer files to see if the customer is a new or
  existing customer.
• Usually, this customer order is recopied onto a
  companys own sales order document.
• A copy of the sales order may eventually be used
  as a sales invoice. Having order data on a
  pre-numbered internal document helps a company
  locate order data and avoid losing orders. This
  is important, because missing documents can
  signal unfilled or unauthorized transactions.

6
Sales Order

• The Sales Order has many of copies
• A copy of the sales order is sent to the Credit
  Department for approval.
• A picking slip or stock request document, to the
  Warehousing Department authorizing warehousing to
  pull the goods and move them to the shipping
  area.
• The packing slip is sent to the Shipping
  Department to communicate that goods are
  forthcoming from the Warehousing Department.

• Two copies of the sales order are sent to the
  Billing Department to inform them of the sale and
  for use in invoicing the customer after the goods
  are shipped.
• A copy of the sales order (the copy with Credit
  Department approval) is filed in the Sales Order
  Department with the customer's order document to
  create a customer order activity file. The file
  of customer orders is organized alphabetically
  (for ease in locating information by customer
  name).
• Finally, a copy of the sales order may be sent to
  the customer to acknowledge acceptance of their
  order.

7
Fill Order

• The Warehousing Department cannot act without
  authorization from the Sales Order Department. in
  the form of the picking slip or stock request
  document.
• Warehousing personnel pick the goods (noting any
  stock-outs or other problems on the picking slip)
  and transfer them to the shipping area.

• (If necessary, a back order document is created
  for stock-out items.)
• A warehouse inventory subsidiary ledger may be
  updated to reflect the goods taken out of
  inventory.
• In a traditional accounting system, each
  department may keep its own inventory records.
  These separate inventory records are not included
  on Exhibits 6-1 and 6-2.

8
Ship Product

• The Shipping Department compares the packing slip
  (from the Sales Order Department) with the
  picking slip and the goods to be shipped.
• They pack the goods and select a carrier they
  prepare a bill of lading (that describes the
  packages they accept for shipment, the carrier,
  the route, and customer information), keep a copy
  in the Shipping Department, and send a copy to
  the customer.

• Shipping personnel prepare a shipping notice to
  communicate that the goods have been shipped.
• The packing slip is included with the packaged
  goods.
• A copy of a shipping notice is sent to the
  Billing Department as notification of the need to
  bill the customer.
• Documents in the shipping activity file are
  typically ordered numerically to allow a
  completeness check to identify missing documents
  or documents used out of order.

9
Bill Customer

• Upon notification of shipment, the Billing
  Department pulls and reviews the sales order from
  the temporary file to make sure the products
  should have been shipped. They also review the
  shipping notice to verify that the goods have
  been shipped and that the transaction meets the
  definition of a sale for accounting purposes.
• The Billing Department prepares a sales invoice
  by adding prices to the data found on the sales
  order document.

• A copy of the sales invoice serves as the source
  document for recording the transaction in the
  sales journal.
• The total amount of the group of sales invoices
  for a period of time is summed to calculate a
  batch control total.
• The batch control total is used to prepare a
  journal voucher document
• The journal voucher document is sent to the
  General Ledger Department for posting to the
  general ledger

A copy of the sales invoice is sent to the
customer (as their bill). A copy of the sales
invoice is sent to the Accounts Receivable
Department to record in the accounts receivable
subsidiary ledger, and the picking slip or
packing slip is sent to inventory control to
update the inventory subsidiary ledger.
10
Information Processes

• The Accounts Receivable Department uses a copy of
  the sales invoice to record invoice amounts in
  the customers account in the accounts receivable
  subsidiary ledger.
• The Inventory Control Department reduces
  inventory balances in the inventory subsidiary
  ledger (for companies that use a perpetual
  inventory system) and assigns the goods sold to
  cost of goods sold.

• The General Ledger Department uses the journal
  voucher to record the total sale as a debit to
  Accounts Receivable and as a credit to Sales in
  the general ledger.

11
Receive Payment

• At this point, the company waits for the customer
  to return payment.
• Often the sales invoice includes an additional
  page to be returned wit the payment, called a
  remittance advice, lists the customers name,
  account number, and balance due.
• Generally, two people are assigned to open the
  mail to reduce employee fraud or theft.

• The employees document the payments by completing
  a batch remittance list that lists the source of
  each check and its amount.
• The amount of the check is compared with the
  amount on the remittance advice to verify their
  equality and the check is restrictively endorsed
  for deposit only.

12
Information Processes

• A copy of the batch remittance list is sent,
  along with the checks, to personnel in the Cash
  Receipts Department.
• A deposit slip is prepared to deposit the checks
  in the bank. The batch remittance list is used
  as a source document to record the cash received
  in the cash receipts journal. The totals are
  used to prepare a journal voucher that is sent to
  the General Ledger Department to update
  (increase) the General Ledger Cash account and
  (decrease) the General Ledger Accounts Receivable
  control account.

• The batch of remittance advices is sent to the
  Accounts Receivable Department where the
  customer's subsidiary ledger is updated to
  reflect the payment. The remittance advices are
  placed in customer files to document the customer
  payment. A copy of the batch remittance list is
  also sent to the controller to reconcile total
  remittances for the day to the bank deposit
  amount (recorded on a validated deposit slip
  obtained from the bank).

13
Sample Data Flows Commonly Associated with the
Sales/Collection Process

• Customer Order
• Sales Order
• Picking Slip
• Packing Slip
• Bill of Lading/Shipping Notice
• Sales Invoice (Bill)
• Remittance Advice
• Deposit Slip
• Customer Check
• Open Sales Order
• Open Sales Invoice

14
Traditional, Manual Sales/Collection Process -
Part 1
Billing
Customer
Customer Order
Customer Order
Hold Until Shipped
Shipping Notice
S/O copies
Prepare Sales Orders
S/O copy acknowledge- ment
6
Match Copies / Extend Prices
Prepare Invoice
Approved S/O
Sales Order
Sales Journal
Goods, Pkg slip 3, Bill of lading 12
Release all S/O copies after credit approval
Dr/Cr to G/L
A Alphabetic C Chronological N Numerical
Invoice
Sales Order 2 Customer Order
.
15
Traditional, Manual Sales/Collection Process -
Part 1
Inventory
Accounts
General
Warehouse
Shipping
Ledger
Receivable
Control
Dr/Cr to G/L
Accts Rec Invoice copy
Packing Slip S/O Copy
Picking Slip S/O
Shipping Notice
Post to A/R sub ledger
Post to General Ledger
Prepare Shipping Docu- ments
Post to inv. records
Release Goods
General Ledger
A/R sub ledger
Bill of Lading
Goods, Pkg slip 3, Bill of lading 12
Picking Slip S/O
Inventory Sub. Ledger
Shipping Notice
Bill of Lading 3
Ship documents goods
N
.
16
Traditional, Manual Sales/Collection Process -
Part 2
Customer
Bank
Controller
In Batches
Remittance Advice
Mail Check and RA
Cheques
Deposit Slip Checks
Remittance Advices
Dr/Cr to G/L
Remittance List Created
Post to A/R sub ledger
Bank Validates Deposit
Post to General Ledger
Remittance List 2
Remittance List 1
A
Remittance List 1
A/R sub ledger
Validated Deposit Slip
Compare
Batch of Checks
General Ledger
Remittance List 2
A
Batch of Checks
Remittance Advices
C
Post to Cash Rec. Journal
Prepare deposit slip
Remittance Lists and Deposit Slips
Remittance Lists
Remittance Advice
A Alphabetic C Chronological N Numerical
Cash Receipts Journal
Checks and Deposit Slip
N
Dr/Cr to G/L
C
.
17
An Overview Of The Traditional Automated
Sales/collection Process

• Authorizations and data access can be provided
  through computer screens there is potential for
  decrease in the amount of paper
• The paper sales and cash receipts journals in a
  manual system have been physically changed to
  disk or tape transaction files. The paper
  inventory and accounts receivable subsidiary
  ledgers and the paper general ledger have been
  upgraded to disk or tape master files.
• Input typically comes from a hard copy document
  (the document symbols) and goes through one or
  more processes. Processes (represented by
  rectangles) store data in files (the tape or disk
  symbols) or prepare data in the form of a report
  (also a document symbol).

18
An Overview Of The Traditional Automated
Sales/collection Process

• Each program can include screens for collecting
  data, edit checks on the data entered,
  instructions for processing and storing the data,
  security procedures (e.g., limiting access via
  passwords or user IDs), and steps for generating
  and displaying output.
• To understand the files and their use, it is
  important to consider their contents (their
  record layouts).
• Notice the relationship between the documents and
  files used for input and the files and documents
  generated as output. The input documents and the
  files must contain the data necessary to generate
  the desired output.

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Traditional Automated Sales/Collection Process
Flowchart - Order Entry
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Traditional Automated Sales/Collection Process
Flowchart - Shipping
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Traditional Automated Sales/Collection Process
Flowchart - Billing
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Traditional Automated Sales/Collection Process
Flowchart - Mail Room
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Traditional Automated Sales/Collection Process
Flowchart - Cashier
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Traditional Automated Sales/Collection Process
Flowchart - Accounts Receivable
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Criticisms of Traditional IT Applications

• Multiple systems
• the sales/collection process has helped you
  notice the large number of IT applications and
  which exist in each functional area, including
  production, marketing, and finance.
• Subset of the process
• each of the traditional IT applications capture,
  store, and process data about a subset of the
  events. None of the applications provide an
  organization-wide view of this process.
• Untimely processing
• system does not capture data in real time,
  significant amount of processing delays results

26
Criticisms of Traditional IT Applications

• Limited characteristics
• The traditional accounting system captures only
  limited characteristics about the events (e.g.,
  date, account, and amount). Capturing only
  limited characteristics restricts the types of
  information accountants can provide to
  information customers.
• Level of aggregation
• Data stored in the traditional accounting system
  is typically very summarized.
• One view
• the traditional accounting system restricts users
  to only one view of the business?the financial
  view

27
Opportunities to Improve the Process

• 3 opportunities for accounting and IT
  professionals to enhance their value
• Define rules to shape the business processes.
• Embed IT applications in business processes to
  control the process and to capyure and store
  detailed data in real time.
• Provide useful information for decision makers to
  plan, execute, control, or evaluate the
  organization.
• Understanding and defining a business process
  includes
• Describing each event, what triggers the event,
  and the business rules associated with the event.
• Identifying business risks associated with each
  event

28
New Architectures to Support the Sales/Collection
Process

• Organizations can significantly improve processes
  by following just one simple principle
• Embed IT into the business process so business
  event data are recorded and event/process rules
  are executed as each event occurs.
• The REAL analysis framework aids in analyzing
  business events by highlighting what (the
  resources involved in the event), who (the
  internal and external agents), and where (the
  location) of each event. The events, agents, and
  resources involved in the sales/collection
  process will vary somewhat from organization to
  organization.

29
Providing Useful Measures About the
Sales/Collection Business Process

• Top Management
• Top managers are primarily interested in summary
  information for the sales efforts of the entire
  enterprise
• Market share of company products compared to the
  market share of competitors.
• Trends in sales this year compared to prior
  years.
• Changes over time in key economic indicators
  compared to changes in the organizations sales,
  sales returns and allowances, and uncollectibe
  accounts.

30
Providing Useful Measures About the
Sales/Collection Business Process

• Marketing
• Information relevant to marketing includes
• Amount and location of inventory in stock.
• Customer preferences and changes in those
  preferences.
• Cost to produce each product and to provide each
  service.
• Activity and success of each salesperson.
• Quantity and price of each product sold by
  salesperson, by customer type, and by geographic
  area.
• Detailed information on competitors products,
  services, pricing strategy, and advertising
  campaigns.

31
Providing Useful Measures About the
Sales/Collection Business Process

• Human Resource
• requires labor information to determine workforce
  needs, oversee employee scheduling, initiate
  employee compensation, and conduct employee
  performance evaluation.
• Production
• to maintain adequate stores of inventory on hand
  and producea quality product.

32
Providing Useful Measures About the
Sales/Collection Business Process

• Finance Accounting
• Finance people must provide
• Strategic management and analysis.
• Management control measures that tie actions to
  corporate strategy.
• Cost management that is forward focused.
• Effective efficient management of financial
  processes.
• Support for the core business processes.

33
Christopher, Inc. Sales/Collection REAL Model
34
Sales/Collection Process Sample Events

• Marketing event
• Customer Order event
• Move the Goods from Warehousing to Shipping event
• Ship Goods and/or Provide Services event
• Receive Customer Payment event
• Accept Returns and Approve Allowance event
• Write Off Uncollectible Accounts event

35
Sales/Collection Process Sample Information
Customers
Top Management Marketing Accounting Finance Produc
tion Customers
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Christopher, Inc. Sales/Collection Process
37
Christopher, Inc. Sales/Collection Process