Meaning of Invoice to Cash
Sub Processes under Invoice to Cash Functional area
The process for I to C can be summarized in following steps:
1.Creating a Sales Invoice
4.Manage Discounts, Adjustments, Bad Debts and Disputes
5.Accounting for Receivables to make sure accounting records are correctly updated with the transactions
Process Flow for Invoice to Cash Process
Invoice to Cash process can be divided into four sub processes;
Step One; Customer Billing or Invoicing
Bills can be raised to customer in many different ways;
One; This could be manual entry in the system
Two; Can be auto created using information from a Sales Order
Three; Can be created based on Shipment Details
Four; Or you can use information available on existing invoice to Copy the same Issuing the invoice
Five: You can use any other method based on your specific business needs
Step Two; Making Adjustments on Invoices or Outstanding Dues from Customers
There could be various types of adjustments that might be required once the invoice has been raised on the customer. Some examples are;
One; Adjustments; You might need to make adjustments for various reasons like goods returned, shipping delays, tax differences etc..
Two; Disputes; The invoices raised can be disputed by the customer, which needs to be tracked and appropriately closed.
Three; Discounts; Discounts need to be provided to customer based on agreed payment terms or other conditions.
Four; Bad Debts; The invoice could turn as a bad debt and you might need to write it off; or make provision in your books.
Step Three; Receiving and Managing Payments from Customers
There could be various ways in which payments can be made by the customer. Some examples are;
Three; Bank Transfer;
Four; Adjustment from the Accounts Payable balance due to the customer as a supplier;
Five; Other agreed methods;
Step four; Application and Accounting of the Cash Received
Once the payment has been received it needs to be knocked off against the dues from the customer. There are various ways in which payments can be applied like;
One; To the respective invoice against which the payment has been received. In this case; the outstanding against the particular invoice; becomes zero; and the invoice is closed.
Two; To the respective account; This happens when the payment cannot be identified against a particular invoice, but the customer is known. In this case; the total “Accounts Receivable” from that customer gets reduced by the receipt amount; but the respective invoices still remain open.
Three; Remains Unapplied; The cash or payment has been received; but the customer cannot be identified; in this case the cash is acknowledged and payment is classified as unapplied.
This completes the invoice to cash basic cycle. Other steps like customer relationship management; bank reconciliation etc. can also be integrated with this cycle.
Key Transaction Fields
Let us understand some key generic fields that are used in almost every system or ERP during the invoice to cash process;
Key Setups / Perquisites
Some key master elements or setups that are perquisite; to this process before transactions can take place in any ERP or any other system: