Describing Receivables Management and Its Role in Company's Financial Operations

Meet Linda. She just finished her business administration studies and started working in the accounting department of the Bike Company. Bike Company produces bicycles and e-scooters made of sustainable materials.

During her studies, Linda learned about different accounting practices and in her new position, she will be mainly working in receivables management or accounts receivable. So, what would be the main tasks of a receivables management accountant? Let’s first look at the operations of the Bike Company. They sell their bicycles and e-scooters daily, which results in numerous outbound deliveries, customer billings and invoices and incoming payments that need to be processed. Although these tasks are distributed among different roles within the company, Linda’s main job is receivables management accounting.

Linda will be working closely with customers and other departments of the Bike Company that are involved with sales and distribution. However, Linda has never worked with SAP before. So, she would like to understand how receivables management domain is represented within the SAP system.

Receivables Management is work area within SAP that handles accounts receivable transactions. The accounting department takes care of open invoices management and incoming payment processes. It is tightly integrated with sales & distribution.

Receivables Management functions within SAP can be summarized in 6 main parts:

• Account Management. Record and maintain all necessary master data for your suppliers.

• Invoice Management. Within this domain, an accounts receivable accountant would check and monitor all outgoing invoices and perform corrections if necessary.

• Incoming Payments. The functions of this domain support receivables management accountants in processing incoming payments from the customers. Receivables are cleared using the electronic bank statement import or via the payment program’s direct debit function.

• Dunning. An accounts receivable accountant can issue official dunning notices reminding the customers about paying the overdue invoices.

• Correspondence. It enables formal communication with a customer. You can send out balance confirmations, account statements, and other forms of correspondence according to your requirements.

• Customer Analytics. Here you can profit from various embedded business intelligence functions that provide key performance indicators, such as days sales outstanding, overdue receivables, or aging analysis.

On Linda’s first day of work, the Bike Company formed a new customer relationship with a company called Velotics, a bike-sharing company, that runs bike renting and sharing stations in different urban areas. Since this Customer is new, it needs to be represented in the company’s SAP system. This is a perfect chance for Linda to understand the process of how a new customer is handled in the SAP system. First, a new master data record for Velotics needs to be created in the SAP system. General data such as the company’s name, address, bank connection, etc. is entered. Now is when the concept of a Business Partner comes into use. By creating this Business Partner entity in the system, we can maintain relationships between other identified roles (such as suppliers and customers) and their relationship to our original Master Business Partner entity.

Linda created a new master data record for Velotics. A few days later the customer placed its first order and billing documents together with an invoice were issued. Now the invoice needs to be checked in the system and the customer will need to eventually pay it.

Linda recognizes that these tasks are part of a bigger process called Lead-to-Cash.

Lead-to-cash is a business process that starts with finding customers, creating sales opportunities, providing customer offers, leading customer to place the order, ship ordered goods or services to the customer and finally process customer payments for these goods or services. Many different areas of Contact to Lead, Lead to Opportunity, Opportunity to Quote, Quote to Order, Order to Cash and Deliver to Invoice are part of the Lead-to-Cash process. The accounting department and the tasks Linda is involved with are part of the Order to Cash sub-process called Invoice to Cash.

Linda creates the Customer invoice for Velotics in the system. To make sure that all necessary information was recorded, she decides to take a closer look at its content. When an invoice gets posted it becomes an accounting journal entry or in other words a finance document. After browsing through the document’s content Linda recognizes 3 main areas:

• Document header, where general or basic information is displayed
• Document line items, where you can see the accounts and the amounts
• Tax area, where all tax-related information is displayed

So, in a nutshell, when a customer invoice is created in the system, the amounts are posted to the relevant accounts (including taxes) and the payment for this invoice is expected to be paid within the negotiated payment terms and with customer’s preferred payment method.

Sometimes it is necessary to issue official communication letters to our customers. In other words – customer correspondence. After receiving some Bike Company’s invoices, Velotics would like to have an account statement for its account in the Bike Company’s SAP system, in order to make sure that the posting information was consistent. Linda, as a receivables accountant, is the right person to take care of this matter.