1. The Sales/Collection Business Process
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 company’s 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 customer’s 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 customer’s 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
Order
Credit
Manager
Billing
Customer
Sales
Order C
Customer
Order
Customer
Order E
Hold Until
Shipped
Shipping
Notice
S/O
copies
Prepare
Sales
Orders
Approve
Credit
S/O copy
acknowledge-
ment 6
Match Copies /
Extend Prices
Prepare
Invoice
Approved
S/O D
Sales Order
Goods, Pkg slip 3, Bill of
lading 1&2
Sales
Journal F I G C
Release all S/O
copies after
credit approval
Dr/Cr to
G/L
A= Alphabetic
C= Chronological
N= Numerical
Invoice B A A
Sales Order #2
& Customer Order H .

15. Traditional, Manual Sales/Collection Process - Part 1
Inventory
Accounts
General
Control
Warehouse
Shipping
Receivable
Ledger B I H A F
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 1&2
Picking
Slip S/O
Inventory
Sub.
Ledger
Shipping
Notice
Bill of
Lading 3
Ship
documents
& goods D N E .

16. Traditional, Manual Sales/Collection Process - Part 2
Mail
Room
Cash
Receipts
Accounts
Receivable
General
Ledger
Customer
Controller
Bank In
Batches
Mail Check
and RA
Remittance
Advice D B C
Cheques
Remittance
Advices
Deposit
Slip &
Checks
Dr/Cr to
G/L
Remittance
List
Created A
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
Prepare
deposit
slip
Post to
Cash Rec.
Journal C
Remittance Lists
and Deposit Slips
Remittance
Advice
Remittance
Lists
A= Alphabetic
C= Chronological
N= Numerical
Checks and
Deposit
Slip
Cash
Receipts
Journal N B
Dr/Cr to
G/L . D C
General
Ledger

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.

19. Traditional Automated Sales/Collection Process Flowchart - Order Entry
Customer master file
From customer or salesperson
Edit order, preform credit check & check inventory
Customer’s order
Enter order via terminal
Performed by sales order clerk
Merchandise inventory master file
Customer’s order
Exception and error display
Orders
Print order documents
Picking list
To warehouse
Acknowledgement
To customer
Sales Order
Orders
Open sales order file

20. Traditional Automated Sales/Collection Process Flowchart - Shipping
From warehouse
Performed by shipping clerk
Picking list (amended)
Enter data concerning goods delivered to shipping
Picking list (amended)
Exception and error display
Shipping file
Edit data concerning picked goods
Shipping file
Print shipping documents
Shipping reference file
Packing slip
Pack goods with packing slip enclosed & ship
To carrier and customer
Performed by shipping clerk
Bill of lading
To billing
Shipping notice

21. Traditional Automated Sales/Collection Process Flowchart - Billing
From shipping
Shipping notices
Performed by billing clerk
Prepare batch total
Enter batch total & select prices
Batch total
Shipping notices
Exception and error display
Customer order 1
Customer billing data
Edit billing data
Customer master file
Pricing ref. file
Open sales order file
Billing file
Prepare invoices & update files
A/R master file
Merch. Inv. master file
General ledger file
Sales history file
Invoice register
To billing
Printed at end of day
To customers
Sales invoice 1
File
Performed by accounts receivable clerk
Open sales invoice file
A/R summary
Compare to batch totals of invoices
Invoice batch totals

22. Traditional Automated Sales/Collection Process Flowchart - Mail Room
From customer
Performed by mail room clerk
Batch total
Remittance advices
Checks
Endorse checks & prepare batch total
Enter cash receipts & batch total
Edit receipts data, list errors & write to receipts file
Customer A/R file
Error & exception display
Open sales invoice file
Remittance advices
Separate checks & remittance advices
To accounts receivable
To cashier
Checks
Exception & summary report
To accounts receivable
Program compares computed totals from processed batch with precomputed batch totals
Remittance list
Compare batch totals & print remittance list
Cash receipts file

23. Traditional Automated Sales/Collection Process Flowchart - Cashier
From mail room
Performed by cashier
Checks
Remittance list
Compare
Remittance list
C/R file
Checks
To bank
Fromother sources
Add new check data to file & print outputs
Cash receipts file
Enter data from checks
To accounts receivable
To accounting manager
Cash receipts listing
Deposit slip

24. Traditional Automated Sales/Collection Process Flowchart - Accounts Receivable
From mail room
Performed by accounts receivable clerk
Exception & summary report
Remittance advices
Remittance list
Compare & make corrections & reconciliations
Customer reference files
Batch total
From cashier
Edit change data
Error & exception display
Open sales invoice file
Enter changes
Cash receipts file
Exception & summary report
Remittance advices
Remittance list
Update files & print analyses
Customer A/R file
Updating errors report
Compare, reconcile, adjust
To managers (and summary files)
A/R summary
GL trans. summary file
File

25. 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 organization’s 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 competitor’s 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 produce a 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
Call on
Customer
Pick/Pack
Inventory
Places
Order
Ship Order
Collect
Payment
Cash
Salesperson
Order Clerk
Shipping
Clerk
Warehouse
Cashier
Carrier
Bank
(0,*)
(1,1)
(1,*)

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
Production
Customers

36. Christopher, Inc. Sales/Collection Process

37. Christopher, Inc. Sales/Collection Process