Solving Issues in Sales

In this topic, we will explore how to handle issues that arise from deliveries. We will process returned items, redeliver items, and see how we can use negative rows in a sales documents to handle partial credits and exchanges.

To increase customer satisfaction, the company has a liberal policy for returning items for replacement, exchange, or credit.

When problems arise from the delivery, a Return document is used to give credit or to provide an option for redelivery from the original sales order.

An optional document, a Return Request, can be used to provide a customer with authorization for returning an item.

Sometimes the customer wants to return an item to exchange it for a different item. In those cases, the option for negative rows on a sales document can be used to return an item and exchange it for another

Once a delivery has been made, there are several options open for how to solve the customer's issues.

The first option is a Return Request. This document allows you to record the customer's reason for the return and to provide them authorization to return the item.

When the item is received you can create a Return. This brings the item into stock and credits the customer for the purchase.

If a customer wants a replacement item, there are two ways you can handle this. Either by creating a new delivery from the original sales order or by adding a negative row to send out a replacement on the Return.

Let's look at these options in more detail.

Since the Return Request is optional, let's first look at the Return document.

If a delivery is damaged or of poor quality, the customer returns the items to you. A Return allows you to reverse a the effects of a delivery, either partially or fully. When you create the Return with reference to the delivery note, the system adds a reversed stock transaction to return the item to inventory.

Why would you need to use a return? For legal reasons, you cannot change or delete deliveries and customer invoices that have already been entered in the system. To correct these, you need to use a clearing document such as a Return or an A/R credit memo document.

If a delivery is returned before you create the A/R invoice for the customer, you can post the return delivery in the system. If an A/R invoice exists, you cannot use a Return.

When you add a return document, the return document increases the quantity in the warehouse by the quantity of the returned item.

The system also creates a journal entry that posts the value of the returned goods to the debit side of a sales returns account and to the credit side of the cost account.

The value of the returned goods is not posted back to the original stock account in order to keep it separate from the value of the undamaged goods. The sales returns account and the cost account are retrieved from the Sales Returns field and the Cost Account field on the Inventory tab of the item master record.

Here is a tip: If you also want to manage the inventory of the damaged goods separately from the undamaged goods, you should define a special warehouse for the damaged goods and enter this warehouse in the return document.

Although the Return Request is an optional document, it can be very useful in managing returns. It allows you to track a customer's request to return and items. Another huge advantage of this document is that you can handle items returned at any point in the sales process because it can be created by copying from either a Delivery or an A/R Invoice.

When the customer contacts you requesting to return an item, you can use the Return Request document number as a reference number that authorizes the return. Often these numbers are called Return Material Request (RMA) numbers.

You can enter the reason for the return.

It might be in your business process that once you document the request for the return, you send out a box with prepaid postage for the customer to return the item or you may request that they print the return request document and include it with their returned item.

Here is an example of a Return Material Authorization that uses a Return Request and a Return.

We shipped the customer a quantity of 5 keyboards. Because we were using perpetual inventory, the delivery created a journal entry for a credit to the stock account for the decrease in inventory value and a debit to the cost account to record the cost of goods sold.

The customer asked to return the 5 keyboards. We copied the Delivery to a Return Request.

The customer sends the item and references the RMA number. When we use Copy to in the Return Request, a Return is automatically created.

When the return is processed, a journal entry is created to record:

• a credit to the cost account for the full amount
• a debit to the sales returns account

Note that some customers use the regular stock account for returns rather than a sales returns account because they do not need to separate returned items from the general stock. Some customers may use a separate warehouse or bin for returned items, the warehouse or bin location can be specified on the row of Return Request.

Let's look at an example of a delivery (without a preceding sales order) for the five keyboards.

Prior to the delivery we had 20 in stock.

Once the delivery for 5 keyboards was made we have 15 in stock and 15 available.

When the Return Request is added, 5 keyboards are added to Ordered and to the Available stock. The Return Request does not have any effect on accounting.

When the Return Request is copied to a Return, the 5 keyboards are returned to stock and a posting is made that reverses the delivery posting.

If there had been a preceding sales order and the setting was made to allow redelivery, a quantity of 5 would have been added to the Committed column and the Available column would have been reduced by 5.

A redelivery can be created from a sales order after items are returned.

An option exists to reopen the original sales order. The open quantity of an item is increased in sales order according the quantity in the return document.

The option to allow redelivery can be chosen by a user or set to occur automatically.

One advantage is that redelivery reduces the need for duplicate orders.

Another advantage is that subsequent deliveries are easier and more transparent. You can view the connection between the documents in the relationship map.

The same functionality in exists on the purchasing side for purchase orders and goods receipt POs. When you create a goods return, the purchase order can be reopened to receive replacement items on a goods receipt PO.

Let us look at a business example for redelivery.

The customer has ordered 10 laptops. The sales order was copied to a delivery for the 10 laptops. When the delivery was saved, the sales order was automatically closed. Since all 10 were delivered there is no open quantity on the sales order.

There was problem with 3 of the laptops. The delivery was referenced to create a Return for a quantity of 3. The user chooses to reopen the sales order so that the quantity of 3 can be redelivered.

A subsequent delivery is created from the original sales order. The open quantity of 3 is delivered, so the sales order is automatically closed and the open quantity on the sales order returns to 0.

To offer users the option of redelivery, the setting must be made in advance.

You can enable the redelivery functionality in the Document Settings window for sales orders.

Once you have selected that option, you have an additional option to always allow the reopening of items in the original order without user confirmation. If this is chosen, then the sales order is always reopened. If left unchecked, a box will appear as the return is saved to ask if the user would like to reopen the items in the original order.

This same setting is also available for the Purchase Order.

Negative rows allow you to give credits directly on sales or purchasing documents.

Using negative rows you can make corrections directly in a marketing document such as a delivery or invoice without using a separate return or credit memo.

Negative rows can be added to sales and purchasing documents. Some of the most useful sales documents for using this feature in are: Returns, Deliveries, A/R Invoices, and A/R credit memos.

On most sales documents, like a delivery or A/R invoice, the negative row is a credit. However a negative row added to a Return or an A/R credit memo will actually be a debit line which charges the customer rather than credits the customer. That is because a positive total on a correction document indicates a credit; therefore a negative amount on any correction document will indicate that the customer owes us.

Another reason to use a negative row is to give a customer credit for sending back packaging while they are ordering more items.

In most localizations, you can have a document with a negative amount. This can be useful in case the amount on the credit rows exceeds the amount on the debit rows in a Return or A/R Credit Memo.

In our business example, our customer has ordered 5 batteries.

The customer quickly realizes that the batteries are the wrong kind.

The customer would like to exchange the incorrect batteries for the correct batteries.

We can create a sales document, such as a delivery or an A/R invoice to ship out the correct batteries

The same document can include a negative row (or credit row) to receive the returned batteries into stock and credit the customer.

Here's a summary of options for returns and exchanges in sales. The summary includes options for crediting A/R invoices that are covered in more detail in the top for A/R Credit Memos.

• For incorrect entry of a Delivery, you can cancel the document. The related sales order will reopen so you can create a new Delivery. The same is true if you incorrectly enter an invoice, you can cancel and reissue the invoice from the Delivery.
• If you need to return item(s) received on a Delivery that is not yet invoiced, it is useful to copy to a Return Request. The system will automatically suggest copying to a Return.
• If you need to return item(s) that have been invoiced but not yet paid, it is useful to copy to a Return Request. The system will automatically suggest copying to an A/R Credit Memo.
• Once an invoice has been paid, you can no longer reference it to create a Return Request or A/R Credit Memo. Similarly, you cannot copy from multiple invoices to create a credit memo.
• If you want to include credit rows in a Delivery or A/R invoice, use negative rows.

• A Return Request can be used to begin the process of handling customer returns. Create the return request from either a delivery or an A/R invoice. When you use Copy to, the system will automatically choose the correct document for giving a credit and returning the item to inventory.
• The Return document is used to process items returned from a customer after a delivery. A Return document allows you to reverse the stock postings and any related accounting postings of a delivery either partially or fully.
• An option exists to reopen the related sales order for redelivery when posting returns.
• Configuration for this option is set in document settings for the sales order.
• Another option for correcting deliveries and managing exchanges is negative rows. Negative rows are available in marketing documents in both sales and purchasing.

In this topic we will discuss how to correct issues that occur after an A/R invoice has been created. We will see how to create A/R Credit Memos and how to cancel an A/R invoice.

• As part of the initiative to improve customer satisfaction, the company has begun studying how to best correct issues that occur after invoicing.
• The key document for correcting invoicing issues is the A/R Credit Memo. A/R credit memos are used to correct problems with invoice pricing as well as to allow items to be returned for credit.
• Another tool for correcting issues is the ability to cancel a marketing document. The company uses this option when incorrect A/R invoices are created.

• The two main correction documents for the sales process are the Return document and the A/R Credit Memo. In this topic we focus on the A/R credit memo. The A/R Credit Memo (or credit note) is the document used to process returned items or to give a pricing credit, once an A/R invoice has been issued.
• Returns cannot be used for correcting issues arising from A/R invoices. They are only used for correcting issues arising in Delivery.
• One advantage of using the Return Request document is that users can use this document for issues arising from both deliveries and A/R invoices. The system will automatically determine the appropriate correction document to follow the Return Request.
• An additional option for correcting issues after a customer is billed is to cancel an invoice and reissue it.

In our business example, the customer is disappointed in the performance of the camera they ordered.

So they have decided to return the camera.

Our item cost for the camera was 50.

The camera was invoiced at the price of 100.

Since the camera had already been invoiced, we had to use a credit memo to process the return.

The A/R credit memo reverses both the invoice posting and the delivery posting.

An A/R credit memo (also called a credit note) reverses either partially or fully the journal entry created by an A/R invoice.

When you create an A/R credit memo with reference to the A/R invoice, the system corrects both the quantities and values in the A/R invoice.

• The system increases the stocks of the credited items.
• The system credits the credit memo value to the customer's account in the general ledger and corrects the revenue by the same amount

If the credit memo is an item-type credit memo with rows for inventory items, then the journal entry for the credit memo will also increase the stock account and decrease the cost account.

In certain cases you may find that a Customer has fully paid an AR Invoice before Returning the Item(s) for credit. In such cases, you must first change the document status of the AR Invoice from Closed to Open. Do this through right click and Selection of the option to Change Document Status to Open. Once you select Update the Document will be reverted to Open status. A refresh of the document will allow a Copy To Credit Memo to be effected.

As we just saw, an item-type credit memo normally returns items to stock as well as gives a credit for the items.

If you wish to give a credit, but not create a goods movement, you have two choices.

You can create an item-type credit memo and select the checkbox Without Qty posting on the item row, or you can use a service-type credit memo.

The advantage using an item-type credit memo and the Without Qty posting checkbox is that an item-type credit memo can be copied from an item-type A/R invoice. Only an item-type credit memo, can you list the item numbers.

Neither of these are possible with a service-type credit memo. Therefore, the service-type credit memo is best used for crediting services or for circumstances where you do not wish to reference the invoice as a base document.

Let us look at an example of creating an item-type credit memo without a quantity posting to inventory.

In this case, a customer’s camera breaks. Unlike our last example, we do not require the customer returns the item to receive credit.

As before, the original cost is 50 and the invoiced price is 100.

We once again reference the original invoice and create an item-type credit memo. However, this time we select the checkbox "Without Qty Posting".

The customer receives full credit for the item and no stock postings are made.

When a customer returns items that do not refer to a specific invoice, you can post this quantity directly to the warehouse without referencing a preceding document.

If the credit memo is for inventory items, then the stock and stock value increase as a result.

If you do not wish to reverse the stock posting and cost postings, you once again have the option to use the checkbox "Without Qty Posting" to eliminate the goods movement.

Then the only posting is to reverse the postings to revenue and customer accounts.

Sometimes it is not appropriate to create a credit memo, instead you prefer to cancel the original document.

Business One gives you the ability to cancel marketing documents such as an incorrect invoice.

When you cancel a marketing document, a new ‘cancellation’ document is created with a reversal posting including quantities and its status is set to Closed – Cancellation. The original A/R invoice posting remains and the status is updated to Cancelled. Both the reversing and reversed documents are closed automatically and fully reconciled.

Canceling a document saves time because any relevant accounting, fiscal, financial and inventory transactions are completely reversed in one step.

Base documents, such as a delivery, are re-opened after cancellation, and can be used as a base document again.

Reporting is available for canceled documents, since the original posting remains in the system along with the cancellation.

You have the flexibility to set a maximum number of days for allowing cancellation after documents are posted, and relevant authorizations support this process.

1. A customer was invoiced before all items on the sales order were delivered.
2. The invoice is canceled. The cancellation creates an invoice with reversed amounts.
3. The original delivery reopens. A second delivery is made. Customer can be invoiced for full sales quantity.

A customer was invoiced before all items on the sales order were delivered.

The customer had asked that they not be invoiced until the full order was received.

The customer had ordered several items on a sales order which were partially delivered. When these items were invoiced the delivery document status was Closed and the open quantity on the delivery was 0.

To resolve the customer’s complaint, the invoice is canceled. The cancellation creates an A/R invoice with reversed amounts.

The original delivery reopens. A second delivery is made.

Now because the full quantity is sent to the customer, the customer can be invoiced for the full sales quantity.

Here’s a summary of options for returns and exchanges in sales.

• For incorrect entry of a A/R Invoice, you can cancel the document. The related Delivery will reopen so you can create a new A/R invoice. The same is true if you incorrectly enter an Delivery, you can cancel and reissue the Delivery from the Sales Order.
• If you need to return item(s) received on a Delivery that is not yet invoiced, it is useful to copy to a Return Request. The system will automatically suggest copying to a Return.
• If you need to return item(s) that have been invoiced but not yet paid, it is useful to copy to a Return Request. The system will automatically suggest copying to an A/R Credit Memo.
• You cannot copy from multiple invoices to create a credit memo.
• If you want to include credit rows in a Delivery or A/R invoice, use negative rows. The use of negative rows is covered in detail in the topic Returns and Exchanges.

• An A/R credit memo reverses an A/R invoice’s journal entry either partially or fully.
• When you create an A/R credit memo with reference to the A/R invoice, the system corrects both the quantities and values in the invoice.
• If the credit memo contains inventory items, then the journal entry for the credit memo will also increase the stock account and decrease the cost account.
• A credit memo can be created without reference to a base document, for example when you need to credit closed invoices that have been paid or for when the credit does not relate to any specific invoices.
• If you wish to give a credit without an impact to stock, you can select the checkbox Without Qty posting on an item row in an item-type credit memo, or you can use a service-type credit memo.
• You can cancel marketing documents such as A/R invoices. A new reversing ‘cancellation’ document is created during each cancellation procedure, and both the reversing and reversed documents are closed automatically and fully reconciled.
• Base documents, such as a delivery, are re-opened after cancellation, and can be used as a base document again.