Meeting your accounting needs through Adempiere – Account Receivable


As part of ERP implementation, we have come across a lot of simple as well as complicated demands from the customer. While Walking Tree has been successfully customizing Adempiere for its client, we intend to share some of our experiences over here to enable the customer as well as development community to make effective use of Adempiere.

In the previous article I have talked about how Adempiere can be used to meet the Account Payable related need of the business. As part of this article, we will explain how Adempiere can be used to manage account receivable for a typical business organization.

Well, when we talk about account receivable, often we think about following terms

  1. Invoicing, parking / editing of invoices
  2. Payment advice
  3. Down Payment
  4. Rebates and Discounts; Automatic calculation of discounts
  5. Collection Letters and Automatic Collection Notifications based upon pre-set ageing levels
  6. Credit limit and credit hold functions
  7. Aging Receivable
  8. Reporting of returned cheques / insufficient funds
  9. Statistical data to manage customer accounts
  10. Standard payment terms supports, such as net 10, net 30 etc
  11. Customer catalogues that record sufficient details of each customer
  12. User – defined customer classes
  13. Customer relation management
  14. Ability to account for Value Added Tax (VAT) or Service Taxes (ST) collected along with invoices
  15. Payment history by customer
  16. Multiple variants of invoice forms for different customers
  17. Customer’s statement to multiple recipients, multiple shipping address – wise customer statement
  18. Receipt of cash without any matching outstanding invoices
  19. Non-product billing
  20. Facility of posting of cash, where single receipts can refer to several outstanding items of customers
  21. Two-Three-Four-way invoices

Let’s review above items one-by-one

Invoicing, parking / editing of invoices
Adempiere allows you to create invoices manually as well as automatically. Also, it allows you to edit the invoice document as long as you have not completed the document. Well – Adempiere provides you more flexibility – just in case you need – by allowing you to use document action like “Void” and “Reverse Correct” to take necessary corrective action.

You can use following windows (depending on your business need) to create invoices

  1. Quote-to-Invoice -> Sales Invoices -> Generate Invoices (manual) – window allows you to select one or more document and create invoice in a single click. Now suppose you have a need where Purchase Order of different types (say standard order, warehouse order, etc) get finalized by Sales Staffs but invoice needs to be created by accounting department. In such case it becomes very easy for the account person to select multiple documents of various type and create invoice for them in a single click. In addition, Adempiere allows you to filter these documents based on Organization, Business Partner, Document Type and Document Action – which further makes life easy for the person responsible for invoicing.
  2. Quote-to-Invoice -> Sales Invoices -> Generate Invoices – process allows user to create invoices for the PO matching the criteria selected by the user. The major difference with Manual invoice window is that here you don’t get to see all the documents that meets your selected criteria, you can process invoice only for pending PO and invoices get generated automatically for them. Invoices for open Orders are created based on the invoice rule of the Order. Further this process allow you to consolidate invoices of multiple order. If several Orders of a business partner have the same bill location, the orders can be consolidated into one Invoice using a tick box (Consolidate to one Document).
  3. Quote-to-Invoice -> Sales Invoices -> Generate Invoices – window provides you capability to create invoice for the customer. By default this window allows you to create invoice using one of the following document types
    1. AR Invoice
    2. AR Credit Memo – to provide credit to the customer against the invoice which has already been sent to the customer. This is used when customer returns some material to the business.
    3. AR Invoice Indirect – Same as AR Invoice, except that it gets used when POS Order is used as its Sales Order document type

Payment Advice
A payment advice note contains the incoming payment details required for allocating and clearing the relevant open items from that customer. Payment advice note often contains the payment amount, payment date, information on the paid items; and remarks related to payment such as document number, reference number, billing document number and so on. Often customer sends a hard copy along with cheque or a soft copy in the form of Email stating how he / she would like you to assign the payment to the open items.

  1. Adempiere allows you to attach any file to a record (in this case payment record with document type AR Receipt).
  2. You can use allocate tab to assign the payment to various invoices as per the instruction received from the customer. You need to make use of Write Off and / or Over/Under Payment concept in case you have a need of partially paying an invoice (this is something customers wish system to take care of implicitly!).

Down Payment
Down Payment (sometimes business also use the term Advance Payment or Deposit Payment) is a payment used in the context of the purchase (or Sale) of expensive items whereby the payment is the initial upfront portion of the total amount due (or a portion of the estimated cost). At this point business just provides (or gets from vendor) is receipt for the payment. There is no invoice.
This functionality doesn’t seem to be very well supported by Adempiere. I see following possibilities being considered with respect to Down Payment

  1. Create a sales order of type “Prepay Order” and capture payment against invoice of such order.
  2. Create payment but don’t complete the payment record unless you assign the payment to the desired invoice

Problem starts when business start expecting you to handle all the practical situations. One of the most common example is handling the situation where Customer doesn’t want to go for the order after paying down payment. Now add into it the complexity related to transaction date and actual account posting and it looks like – it will be good to handle down payment separately.

Rebates and Discounts; Automatic calculation of Discounts
While customers can be very creative while defining discounts for their business, I must admit that Adempiere has got reasonable support for discounts to allow business to fulfill their basic needs.

  1. While setting up price list you can define “Product Price Vendor Breakup”, which allows business to define pricing based on the number of quantity sold in a given PO
  2. You can define Discount Schema (it allows you to mention flat discount as well as breaks on number of quantity in the PO) and associate the schema with the business partner. The discount will get applied after calculation of the (standard) price and results in the final price.


Collection Letters and Automatic Collection Notifications based upon Pre-set ageing levels

While depending on the business need collection and collection related notification can be simple (e.g. retail outlet where most of the transactions happens by cash / credit card) or complicated (e.g. in telecom industry you often find a separate department existing just for collection management), the Adempiere has tried to fulfill the common needs of the business.

  1. You can associate a customer with a dunning code, which is linked with dunning letters. The system allows you to define criteria (e.g. days after due dates, whether to show all invoices, Fee to be charged, new payment term, etc.) based on which the dunning will be initiated.
  2. Associate a grace period for a given business partner or for the specific invoice of the business partner for initiating dunning action
  3. Many times collection leads to dispute on the invoice. Adempiere allows you to put an invoice into Dispute status

Credit limit and credit hold functions
Adempiere provides facility to define and use Credit Status (Hold, Stop, Watch, OK, No Credit Check), Credit Limit and Credit Used details about a customer to allow business to take decision regarding order value of the customer. If the credit status of the customer is Hold or Stop then sales order by the customer is not honored.

Aging Receivable
Adempiere provides you report which shows aging of receivable as well as payable. You can see the open items (invoices) which are due (>31 days, > 61 days, > 91 days, etc.). Also, there are processes (e.g. dunning process) which makes use of age of the open item to take the required action.

Reporting of returned cheques / insufficient funds
Currently Adempiere doesn’t provide anything off-the-shelf to report about the returned cheques. However, it will be a good idea to ask for a mandatory reason (drop-down) from user whenever a payment of type cheque is being reversed. This will allow business to capture NSF (not sufficient fund) related issues and also link customer’s credit with this.

Standard payment terms supports, such as net 10, net 30 etc
Adempiere provides Payment Terms Window which allows business to define different payment terms that they offer your customers and that are offered to them by their vendors. In general I have found that payment term offered by Adempiere works for most of the businesses.

Ability to account for Value Added Tax (VAT) or Service Taxes (ST) collected along with invoices
The system allows you to post tax amounts against the tax specific financial account (CoA). However, business do need to customize Adempire to come up with different reports

Payment history by customer
As you might have guessed, Payment history by customer is just a report. Adempiere provides report like Payment Details and Unallocated Payments to search for payments in the system.

Receipt of cash without any matching outstanding invoices
Currently, Adempiere allows you to create the receipt in draft status. However, if you want to complete the receipt then it expect you to allocate the equivalent amount to an open item.

Non-product billing
Business often has a need to bill the non-product related stuffs. For example – a company may be selling product as well as services. In such case they should be able to bill services as well. Well – Adempiere creates a product for such things automatically for you. This is where customer gets confused and they often ask implementers not to show automatically created products.


Facility of posting of cash, where single receipts can refer to several outstanding items of customers

This is very well supported by Adempiere. Using Allocate tab of Payment window, you can specify as many invoices as your payment amount and invoice balance amount allows.

Overall if you observe closely, Adempiere is meeting most of the common need of the business. I haven’t seen any ERP implementation where customer doesn’t go for minor customization. In general most of my customers have been happy to see these functionality and it works as well!

In case you need further help on Adempiere, you can reach by referring to our contact detail on Contact Us page.

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Posted in ADempiere, EagleRP
2 comments on “Meeting your accounting needs through Adempiere – Account Receivable
  1. Walking Tree says:

    Hello Abheek
    Thank you for bringing TCS into this discussion.

    Tax Collected At Source (TCS) is a tax being collected at the source by the seller (collector) from the buyer (collectee) for goods traded u/s 206C (1) of the Income Tax Act, 1961. For different nature of goods, the government expect business to apply different taxes (this looks similar to TDS where for different nature of payments, there may be different tax rates). For example “Tendu leaves” attracts 5% tax (maximum), while at the time of selling Scrap (damaged materials obtained from manufacturing units that are of no further use to that company), the seller is supposed to collect 1%.

    While surcharge is not applied for the domestic companies – for foreign company a surcharge of 2.5% is applicable if the total collection exceeds 1 crore from that company. Also, for foreign companies there will be a cess of 3 % (2% education cess and 1% secondary education cess) on the taxes collected (which doesn’t include Surcharge).

    As part of ERP implementation, the business do expect a way to setup nature of goods and related taxes and make use of them when selling the goods. However, unlike TDS (which we often apply on the completed & accepted) invoice, TCS is getting applied at the time of invoicing itself (something similar to VAT or Service Tax). What we have done is that we have defined two set of taxes for different nature of goods (1. for domestic – i.e. Indian Market and 2. for export – international market) and recommend accountants / business user to select these taxes as applicable.

    You may refer to below link for more detail about TCS.

    http://www.incometaxindiapr.gov.in/incometaxindiacr/ppt_html20081017/TDSTutorial/TDStrial10.html

    Regards
    Alok

  2. Abheek says:

    I was reading your article on Account Payables and saw a very good explanation about tds (including usage of Thai Withholding functionality to manage TDS). Thank you for that. However, there is something called Tax Collected @ Source (TCS). This is charged by the seller to the buyer and I guess it will be linked with the account receivables. How do you see this working in Adempiere? Do you think that we can apply withholding concept for TCS as well?

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