Generating the Cash Flow, Aging and Dunning Letters Reports

• Maria, the accountant at OEC computers, wants to better control their cash account balances and to forecast expected incoming and outgoing payments.
• You introduce her to the Cash Flow and the Cash flow Forecast reports, which enable controlling of the monetary status of the company.

Cash flow is a forecast report -

You can find the Cash Flow report in the Financial Reports menu of the Financials module.

The report provides information about the liquidity of your business that goes beyond the scope of a profit and loss statement.

It displays the balance sheet accounts, which reflect the monetary value of the company.

The cash flow report in SAP Business One lists the totals and balances of both the accounts that represent cash holdings and the accounts that expect a cash flow in the future (either incoming or outgoing) for the time interval you have requested. In the image, you can see the list of these cash flow components.

• A security level is the level of probability that the transaction will turn to cash (incoming and outgoing). The probability that a cash flow transaction can be expected varies considerably. For this reason, each component balance has a different security level.
• Look at the image. The cash flow components are ordered by security levels:
  • The most certain transactions are derived from cash accounts, such as bank accounts
  • Then the credit card vouchers and checks received
  • The next level is Customer Liabilities (e.g. A/R Invoices) and Debts to Vendor (e.g. A/P Invoices)
  • The lowest security level is the customer and vendor forecast. The customer and vendor forecasts represent the open documents, such as sales and purchasing orders and draft documents.

The Cash Flow runs according to:

• Open transactions - not reconciled (with the option to display fully reconciled postings).
• The transaction Due Date.

The Cash Flow is displayed according to:

• Time Intervals (days, weeks, months etc.)
• Security levels

The report lists all time intervals within the date range of the report. Each interval lists the expected transactions (in the future) according to their security level.

In the image, you can see an illustration of one time interval within the cash flow report. Different transactions are displayed according to their security levels.

Note that there may be several transactions within a security level.

On the Cash Flow Selection Criteria window, you can add to the cash flow:

• Recurring transactions, which appear in green in the report
• Open journal vouchers, which are displayed in blue in the report
• Marketing documents that do not create journal entries, such as sales order and draft documents.
• You can also add approved blanket agreements to the report calculation.

In the Include Projected Postings table, specify future transactions that have not been recorded yet in SAP Business One, such as the purchase of a new car for the business, designated to be executed next month. The report displays the additional transactions in green.

Another way of presenting the company cash flow data is the Cash Flow Forecast report. This is a quick, easy to use, graphical tool that generates the report instantly.

Adjusting the time range or changing any configuration data will regenerate the report and graph on the spot.

The bar graph shows incoming amounts in blue and outgoing amounts in green. The line graph shows net and accumulated amounts.

The Statement of Cash Flow is another report and a legal document that is required by many localizations - just like the profit and loss statement and the balance sheet.

You need to configure initial settings on the General Settings window on the Cash Flow tab and set defaults for assigning transactions to relevant items in the Statement of Cash Flow.

For more details on how to configure the Statement of Cash Flow, refer to the online help.

• Here are some key points to take away:
• Cash flow is a forecast report which reflects the monetary value of the company.
• The cash flow runs based on open transactions (not reconciled) and the transactions' due dates.
• The cash flow report displays balances of cash holdings (such as cash in the bank) and expected cash flow in the future (such as future incoming payments and open invoices).
• The system assigns the balances to various security levels based on the level of certainty. For example, cash holdings belong to the first level (cash accounts), while expected incoming payments from open invoices belong to the forth level - Customer Liabilities.
• The cash flow forecast report is a tool that lets you generate a quick, graphical cash flow report.
• The Statement of Cash Flow is another report and a required legal document in some localizations.

Maria the accountant at OEC Computers asks for a tool that can help her monitor customer debts.

She also needs to monitor the company's debt to vendors.

You introduce her with the Aging reports:

• The Customer Receivables Aging - enables active tracking of the open balances of customers (debts).
• The Vendor Liabilities Aging - enables active tracking of the open balances of vendors (The company's debt).

• The sales process affects the cash status of the business.
• What kind of definition related to business partners can influence the company's cash flow?
• How can you improve the company cash flow and make it more steady?
• Which report can help you achieve this purpose?
• Some background to this question: even when it is profitable, a company can go bankrupt due to cash flow problems. Keeping a positive cash flow is crucial.

The company can improve the Cash Flow results by:

• Defining the appropriate payment terms for each customer. Payment terms are set for each business partner in the Business Partner Master Data on the Payment Terms tab.
• Payment terms influence sales documents' due dates and expected payments. You can set default payment terms for customers and vendors in System Initialization, under General Settings on the BP tab. The default payment terms are used when you set up a new customer, but you can adjust the payment terms in a customer master to reflect the payment risk involved with that particular customer.
• Monitor the credit-worthiness of your customers in the Customer Receivables Aging report. The Customer Receivables Aging report is the monetary controller of the Sales-A/R module.
• Let us take a deeper look at what the customer receivables aging report shows us.

The Customer Receivables Aging report shows all open transaction (unreconciled) of customers, typically A/R invoices, and how long it is overdue.

This is a key report for monitoring customers' debt as well as evaluating the credit quality of customers.

You can find the aging reports in the Financials module. From the Financial Reports menu choose Accounting and then Aging.

The report can be expanded to show each transaction (as shown in the image) or collapsed to show aggregated amounts per customer.

A similar aging report with the same structure exists for vendors. When Maria wants to see open A/P invoices for vendors, she generate the Vendor Liabilities Aging report.

After generating the aging report, either for customers or for vendors, you can e-mail the respective aging data to the relevant business partners.

You can specify an aging date after which the due dates are to be calculated. You can also specify intervals in days, months or periods, for grouping receivables by how old they are.

As you can see in the graphic, this report gives you a quick look at how overdue your invoices are. At the bottom of the report, you can see the percentages of overdue invoices in each aging interval.

Look at the image. The first row represents an invoice with a balance due of 1,000. This invoice is up to 30 days later than the aging the aging date that was set for the report.

The due date of the second invoice, for 20,000 is earlier than the aging date and therefore the amount appears in the Future Remit column.

The due date of the third invoice for the amount of 500 is 30 days to 45 days pass the defined aging date.

As the report can display all open transactions of the business partner, Credit memo, incoming payments and journal entries are also displayed in the report.

In the image there is one credit memo for Funtec. The amount is displayed in brackets since it is a customer credit amount.

You can display connected vendor data in the Customer Receivables Aging and connected customer data in the Vendor Liabilities Aging. To do so, check the Consider Connected Vendors/Customers box on the selection criteria initial window.

A connected customer or vendor is used when a business partner is both customer and vendor. Remember that there is one business partner master data for the customer and one for the vendor. Refer to the Customers and Customer Groups course topic to learn how to connect a customer to a vendor.

Once the two business partners are connected, you can clear open debts of the customer with the open debts for the vendor.

In the image you can see both A/R invoices for Funtech the customer and A/P invoices for Funtech the vendor. The total balance due took into consideration the A/P invoices amount .

Here are some key points to take away:

• The Customer Receivables Aging report shows open transaction (unreconciled) of customers, typically A/R invoices, and how long it is overdue.
• You can specify:
• An aging date after which the due dates are to be calculated.
• Period Intervals in which overdue items are to be grouped.
• The Vendor Liabilities Aging report:
• Shows open transactions of vendors, typically A/P invoices and their age.
• Has the same report structures as the Customer Receivables Aging.
• For connected business partners you can display:
• A connected vendor open transactions in the Customer Receivables Aging report.
• A connected customer open transactions in the Vendor Liabilities Aging report.

• Maria tells you that controlling customer receivable status and minimizing payment delays is crucial.
• You introduce her with the Dunning process that enables sending reminder and warning letters for open A/R Invoices.

• What proactive steps can OEC Computers take to improve the Cash Flow Results?
• What kind of options does a company have to ensure timely payments?
• How can they prevent "bad debts"?

To enhance a positive cash flow the first step will be to send debtor statements for outstanding debts. This statement can be printed out from the aging report.

Once the customer's debt is overdue the next level of debt collection would be charging the customer interest and dunning fees.

The company should activate a multilevel collection process, using the telephone, E-mail or printed reminders, for the remiss customer. This is done by the Dunning process.

SAP Business One provides a dunning wizard for producing reminder letters.

The Dunning Wizard enables you to create and send letters to customers that have not paid their open invoices within a given time range and reminds them of their overdue payments.

Go to Sales A/R → Dunning Wizard.

The dunning wizard runs through all the customers, checks all outstanding A/R invoices and transactions that represent debt, and enables you to print and send, or e-mail reminder letters of different levels of severity.

• In addition, service invoices are created automatically for interest and dunning fees during the dunning wizard run.
• This way, dunning interest and fees are reflected in the business partner account balance.
• For this purpose you need to configure the Dunning system.

To configure the dunning system, go to the Administration module. In the Setup menu, choose the Business Partners sub-menu and then the Dunning Terms option.

In each dunning term, you can define multiple levels of dunning letters. This definition will set the automatic creation of dunning letters.

For each level, you can define when to send the letter, how much fee to charge per letter, and whether to charge interest or not.

A best practice would be to make each level more severe.

Let us examine the example shown in the image:

• In the first dunning letter, the Effective After field states the value 30. This means that 30 days after the due date of the open invoice, dunning letter 01 will be recommended for issue.
• Dunning letter 02 will be issued 10 days after dunning letter 01 was issued.
• Dunning letter 03 will be issued 10 days after dunning letter 02 was issued.
• You can also see that every letter will invoice the customer a fee of 5, plus an interest amount.

• When you select at least one interest option in one of the levels, the Bank Interest % section appears at the bottom with the relevant fields for you to define.
• In the Annual Interest Rate field define the rate to be used in calculations in the dunning letter.
• In the Automatic Posting field, specify whether to automatically post interest and fee, interest only, or fee only when creating a dunning letter for a customer. If you choose to automatically post interest and/or fee, a service invoice is created in the dunning run that posts the interest and/or fee.
• To enable this, accounts for posting interest and fee must be specified. The default accounts are taken from the G/L account determination. However, you can change this setting by choosing the browse icon and specifying different accounts.
• You can also choose not to post any interest or fee.
• You can edit the default dunning letters in the Report and Layout Manager which is found in the General Setup area of the Administration module.

• Each customer must be assigned a dunning term. It is possible to set up a default dunning term for new customers on the BP tab in the General Settings.
• The dunning term will appear in the customer master data record on the Payment Terms tab.
• Once a dunning term is selected for the business partner, the Automatic Posting field appears. The value in this field is taken from the definition in the Dunning Terms - Setup window but can be changed for each customer.
• Now you can run the Dunning Wizard to view delinquent customers and send dunning notices, as well as service invoices for interest and dunning fees.
• After running the Dunning Wizard, you can also track the last level of dunning letters in the Accounting tab of the master data.

SAP Business One can display open transactions of connected vendors in the dunning wizard recommendation report.

When Maria, the accountant, runs the dunning wizard, she also considers the debts of OEC Computers to connected vendors, before sending dunning letters.

Look at the image. This is a recommendation report for the business partner Maxi Teq, which is both a customer and vendor of OEC Computers. The customer and the vendor master data are connected.

Therefore the recommendation report displays the open transactions of Maxi Teq the vendor as well.

Note that to display transactions of connected vendors, you have to check the Consider Connected Vendors box while running the wizard.

Also note that the open balance of vendors and the open balance of customers are displayed separately and thus do not affect any customer dunning calculation or the content of letters.

To learn more about connected business partners, refer to the Customers and Customer Groups topic.

Here are some key points to take away:

• The dunning wizard runs through all customers and checks all outstanding A/R invoices and transactions that represent debt.
• The dunning wizard enables you to:
• E-mail or print and send reminder letters with different levels of severity.
• Automatically create service invoices for interest and dunning fees.
• View connected vendors open transactions.
• In the Dunning Terms window you set:
• The dunning letter levels.
• The fees and interest for each level.
• Interest level and G/L account for creating the automatic invoices.
• In the business master data, you can configure and monitor dunning information of a customer.