Revenue and receipts

10.3 Sales: How the system works at ProRide (Pty) Ltd

• Great care is taken to ensure sales orders are accurate and complete and that customers are within their credit terms from the start.

• Orders are dealt with promptly; goods are picked and dispatched (usually) within 24 hours as a performance measure.

10.3.1 Receiving orders

• The company does not make "over the counter" sales; sales are made to account holders only.

• Three order clerks are located in their own office with terminals linked to the AS 400, telephones, and a direct fax line.

• They have "read only" access to the inventory masterfile and the debtors masterfile, with limited information available for confidentiality.

• Orders are received by phone, email, fax, and through the post.

• Phone orders are not always confirmed by hardcopy/email.

• ProRide (Pty) Ltd's customer base is varied, ranging from large companies with formal financial systems to small general dealers and "bike shops" with less formal systems.

10.3.1.1 Telephone orders

• When a phone call comes in from a customer, it is directed to the first available order clerk by a phone queuing system.

• We will assume for the purpose of this illustration that one of the order clerks is Jazelle Roos.

(a) Validation of the customer

• On receiving the call, Jazelle will greet the caller and enquire as to whether he is an account holder. If so, she will request the customer's account number (or company name) that she will enter onto the system.

• If the number (or name) given by the customer is a match to a debtor on the debtors masterfile, further details pertaining to the customer will appear on the screen and Jazelle will ask the caller to supply (some of) this additional detail to "validate" the customer.

• If the number (or name) given is not a match, no order can be taken.

• If the caller is not an approved customer, the caller will be referred to Judith Oldman, the credit manager.

(b) Debtors with a hold on their account

• When a customer's account details appear, there may be an on-screen message that conveys to Jazelle that the debtor's account is on “hold”, meaning that no orders can be taken for that customer.

• The decision to place a hold on a customer's account will have been taken by Judith Oldman (credit manager) and Johan Els (financial manager) and the reason would be that the customer is no longer considered to be creditworthy.

• The hold is effected by the entry of a code into a designated field on the debtor's account in the masterfile (write access to this field is restricted to Judith and Johan and holds are logged for subsequent review by Brandon Nel the financial director).

• Note that this hold has nothing to do with the value of the new order the customer wants to place, so it is not a matter of a current order pushing the customer past his credit limit. This hold is about identifying a customer with whom the company does not want to trade!

• If the account comes up with a hold on it, Jazelle will inform the customer and transfer the call to Judith.

• The hold can only be lifted if Judith and Johan agree, after thorough investigation, that the customer's problems can be resolved. Lifting of this hold is not done until the customer has brought his account into line, and may not even be lifted at this point.

• Removal of the hold code is restricted to Judith and Johan, it must be supported by a signed motivation, and is logged for review by Brandon. The intention of this strict set of procedures is to limit losses from bad debts.

(c) Taking an order from a customer

• ProRide (Pty) Ltd does not operate a complete telesales system in that the orders taken over the phone are not entered directly onto the system. It would probably be more efficient to do so, but the system as it is works well.

• Once Jazelle has "validated" the customer as above, she can take the order details. All order details are manually written onto a sequenced, preprinted internal sales order (ISO).

• Order clerks are regarded as sales personnel. With many hundreds of different inventory items, customers are frequently not aware of the precise inventory codes and descriptions of what they require despite having access to catalogues, a website, etc.

• For example: A dealer might wish to order bicycle spokes; at this point Jazelle will access the inventory masterfile (read access only) and, making use of her "enquiry" privilege, will enter “bicycle spokes”. This brings up a list on screen that contains a description of each of the different types of bicycle spoke ProRide (Pty) Ltd carries, the inventory item code, description, number of items in inventory and the selling price. Line items appear as follows:

  • BS 123 Stainless steel 700c 48 R17,50

  • BS 149 Galvanised Black 700c 26 R13,20

• With this information Jazelle is able to establish exactly what the customer requires, whether it can be supplied (in stock) and the selling price. As each item is agreed, she manually records the item code and quantity on the ISO, and before moving onto the next item, confirms with the customer.

• All order clerks receive ongoing training relating to the products the company sells. This sound personnel practices control enables the order clerks to promote sales rather than just take orders.

• For example: If a customer wants an item but it is "out of stock", Jazelle is competent to offer alternatives. The inventory masterfile also has a field into which additional information can be added (not by Jazelle) to indicate inventory items that may be "on special" at a reduced price. With this information the order clerks can offer these items to the customer.

• Once the order details have been taken, a customer order reference is obtained, and all details of the order are confirmed. The customer is given the ISO number as his reference to the order placed and the telephone conversation is then terminated. Jazelle will then promptly complete the ISO (checking details to the inventory masterfile where necessary) and sign it (isolating her responsibility for taking the order.)

10.3.1.2 Backorders

• If an item is "out of stock" and a satisfactory alternative cannot be agreed upon, Jazelle will ask the customer whether he wishes his order to be placed on "back order". If so, she will manually record the details on a back-order list. Each week she will access the inventory masterfile to determine whether any inventory items appearing on her back-order list have been received into inventory. Once an inventory item is available, she will phone the customer. An ISO is not automatically compiled. If the customer wishes to place the order, the normal procedure is followed.

10.3.1.3 Hardcopy orders (fax, post and emails printed)

• All hardcopy orders received through the post are sent to the order department by "mail receiving". Pro-Ride (Pty) Ltd's customers are provided with the order department's fax number and a dedicated order department email address, and are also requested to mark their hardcopy orders confirmation only if the order has been placed telephonically. As mentioned earlier, customers do not always confirm telephone orders. All orders that are not marked “confirmation only" are checked against the copies of the ISOs held in the order department to ensure that the order is not duplicated. If there is any doubt, the customer is contacted.

• The procedure for hardcopy orders is basically the same as for telephonic orders. An ISO is made out for each order after the debtor's status and inventory availability checks have been carried out. Thus an order placed by a customer who may have a "hold" on their account will be identified, as will an "out of stock" order. These conditions will be treated in the same manner as a telephonic order.

• The result of the procedures in the order department is the production of a source document (ISO) that represents an order from a customer in good standing, accurately compiled and complete with all necessary detail to proceed with filling the order.

10.3.2 Opening an account

• As indicated, the company sells only on credit to account holders. Before a business entity is accepted as a customer it must complete a credit application form and submit it to ProRide (Pty) Ltd. (To speed up this process the customer can use the “online” facility available on ProRide(Pty) Ltd's website.)

• The credit application form requires the potential customer to provide:

  • the business entity's basic details, for example, name, address, phone numbers, email address, etc.

  • the business entity's registration number, where applicable, for example, company or CC registration number

  • full details of directors, members (CC) or partners of the business entity

  • trade references, and

  • credit terms and limits required.

• Judith (the credit manager) then uses a credit bureau (that we will call Credit Secure) to investigate the creditworthiness of the potential customer. Credit Secure offers their service online, and to make use of this facility, ProRide (Pty) Ltd has registered with Credit Secure. On registration, ProRide (Pty) Ltd was supplied with a unique password that must be entered once the Credit Secure website has been accessed. The password is only known to Judith and her senior assistant. The website then requires that key details, for example, the company registration number, be entered. This initiates a search of relevant databases and the production of a report by Credit Secure. This report provides ProRide (Pty) Ltd with an assessment of the business entity's creditworthiness as well as a credit rating, for example, A = excellent, E = poor. If Credit Secure has insufficient information about the entity on its databases, it will undertake a special investigation if asked to do so.

• Once the Credit Secure report has been obtained, it is filed with the original application (hardcopy) and discussed by Judith with Johan (the financial manager), at their weekly "debtors” meeting. At this meeting a decision is made on whether credit should be granted and on what terms. This decision is recorded on a document and signed by both Judith and Johan. The document is used as the authority to add the new customer to the debtors masterfile. Dalene Burger (accounting supervisor) actually enters the new debtor onto the masterfile. All amendments are logged by the computer.

• The financial director, Brandon, is supplied with a printout (log) each month of new account holders and he will review the supporting documentation relating to these account holders.

10.3.3 The production of picking slips

10.3.3.1 Entering details from the ISO

• Once the ISO is complete, it is placed in a secure pigeon hole at the door to the computer department (that is physically separate from the order department). At regular intervals through the day, Rushda Devon, the data clerk, will remove the ISOs from the pigeon hole and capture the details of each ISO to create a "picking slip" (PS). Access to the sales application is restricted. Rushda has her own password and is given read or write privileges to only those modules that she needs to perform her function (least privilege principle). The application is menu-driven and Rushda will select the "create picking slip" module. The screen will then come up formatted (laid out) as a "picking slip" and she will enter the information into the appropriate fields. Rushda is required to enter minimal information only, and does not have write access to any fields other than those that she must complete, i.e. she cannot change any standing data, for example, an address. Fields to which she does not have write access are shaded on her screen.

  • Entry of the customer's account number brings up the rest of the customer's details.

  • Entry of the inventory item code brings up the description of the goods ordered.

  • The quantity ordered must be entered.

  • The programme automatically provides the document number (sequenced and that cannot be altered) and the date.

  • The corresponding ISO number must be entered.

10.3.3.2 Credit limit check

• You will recall that when an order is initially received, any debtor's account that has a "hold" on it is identified, and no sales order will be accepted from that debtor. This is in effect an initial creditworthiness check and a second credit check takes place when Rushda enters the ISO.

• Once all order details have been entered, the computer instantly calculates the total value of the new order and adds it to the debtor's balance. The new balance is compared on the system to the debtor's credit limit, that is held on the debtors masterfile. (Note that this is only a control procedure; the debtor's account is not updated at this point, nor is a picking slip produced.)

• If the debtor's credit limit will be exceeded if the new order is processed, the picking slip cannot be printed and the ISO will be written to a sales order pending file on the system.

• At the same time as the sales order is written to the pending file, a screen message is sent to Judith Oldman (credit manager), alerting her that the sales order is on the pending file.

• As soon as she is able to, Judith will access the pending file and decide on whether to authorise the sale or not. To be in a position to do so, she carefully considers the payment record of the debtor, the amount by which the limit has been exceeded, and, if necessary, will phone the debtor to discuss the problem and a possible solution. If she is satisfied in her own mind that the debtor will pay, she will approve the sale. Only Judith can effect this approval, as only a screen linked to her user profile will reveal the "approve" option.

• On approval, the sales order will be transferred to the picking slip file from where it is treated as a normal approved order. The sales order pending file is updated to reflect that the pending sales order has been approved.

• If on entry of the sales order, the debtor's credit limit check is satisfied (which is normally the case), and the sales order is written to the picking slip file. Once Rushda is satisfied with what she has captured, she selects the "print picking slip" option and a picking slip is produced. The printed picking slip contains the following:

  • inventory item code, and description of goods

  • quantity ordered

  • document number and ISO number

  • customer details (including delivery address), and

  • an empty block next to the quantity ordered for each item (the actual quantity picked is later entered in this block).

• As the picking slips are produced, they are placed in a secure pigeon hole in the picking area. A batch system is not used.

10.3.4 Picking the goods

10.3.4.1 Physical picking

• The picking area is located next to the warehouse. It is broken down into numerous designated sections where items picked for each order can be placed. It is secure to the extent that only pickers, warehouse management (Reg Gaard, the warehouse manager, and his foreman, Patrick Adams), and senior management are allowed into the area unaccompanied by warehouse management. Patrick closely supervises the team of pickers. Using the picking slip, a picker will take each item from its inventory location (bin, box or shelf) and place it in a designated section in the picking area. Each item that is picked will be ticked off in the empty block next to the quantity indicated on the picking slip. If the correct quantity cannot be picked, the actual quantity picked is entered in the block. The picking slip is signed by the picker and left with the items that have been placed in the designated section of the picking area. Patrick will test check the goods picked against the picking slip randomly. (They are checked again at the packing stage.)

10.3.4.2 Preparing the invoice

• At regular intervals throughout the day, Patrick collects the completed picking slips and delivers them to Dalene (the accounting supervisor). She calls up the "prepare invoice" module at her terminal located in the computer department by entering the picking slip number. The "picking slip" appears on the screen and Dalene, with reference to the hard-copy picking slip, makes any reductions to the quantity field that may be necessary. Although an inventory availability check is done at the order taking stage,

• situations do arise where the theoretical "inventory on hand" quantity in the masterfile is greater than the actual number of items on hand. This could occur where inventory items have been stolen or placed in the wrong inventory location.

• Alterations to other fields on the picking slip cannot be made. For example, additional items cannot be added and any amendment to the quantity field for a quantity that is greater than the quantity field on the picking slip, will be rejected.

• The result of entering the actual quantity of items picked is that the invoice produced agrees exactly with the goods that have been picked for despatch. As you would perhaps expect, details of any quantity reductions entered are automatically written to a report by the computer. The report is used to notify the customer of the problem and for Reg (the warehouse manager) to investigate before the "stock on hand" field is corrected in the inventory masterfile. Reg does not have the necessary access privilege to make the alteration in the inventory masterfile as this would amount to a poor division of duties between custody and record keeping relating to inventory.

• Access to the "prepare invoice" module is restricted to Dalene, with Rushda Devon as backup. Once Dalene is satisfied that the "on screen” invoice is in agreement with the hardcopy picking slip, she selects the confirm option. This immediately updates the debtors masterfile and quantity field on the inventory masterfile and the general ledger accounts. The applicable picking slip on the picking slip file is coded to indicate that the goods have been picked and invoiced. She then prints the invoice in triplicate.

• The picking slip and invoice have the same document number, but the invoice contains the additional information necessary to record the sale, for example, prices, extensions, value of the sale, VAT, settlement terms, etc.

  • Copy 1 is filed numerically in the debtors section with the picking slip.

  • Copies 2 and 3 are sent directly to Reg Gaard (warehouse manager).

• Upon receipt of the two invoices, Reg and Patrick supervise the packing of the items in each designated section of the picking area, into boxes, checking the goods picked to the invoice. Both copies of the invoice are signed by either Reg or Patrick. One copy of the invoice is placed in the box with the goods, and the second copy is used as a delivery note (see despatch below).

10.3.5 Despatch

• ProRide (Pty) Ltd does not make its own deliveries. The company uses a road transport company (Roadline) that delivers countrywide on a daily basis. Roadline has a small office staffed by two of their employees situated in ProRide (Pty) Ltd's despatch area. The despatch area is physically very secure using conventional methods. The boxes for delivery are moved from the picking area into despatch under the supervision of Reg or Patrick and one of the Roadline employees. Taking the details off the "delivery note/invoice", the second Roadline employee generates a sticker and waybill (four copies). Each box is sealed and the sticker, with the customer and delivery details (including the number of boxes in the consignment and the relevant invoice number), is stuck onto the box.

• The Roadline waybill contains a waybill number, the customer's name and address, the ProRide (Pty) Ltd invoice number and the number of boxes to be delivered to that customer. The four copies of the waybill are used as follows:

  • Copy 1: filed in numerical sequence by Roadline with the ProRide (Pty) Ltd invoice/delivery note.

  • Copy 2: filed in numerical sequence by ProRide (Pty) Ltd. Before the boxes for delivery are finally released to Roadline, Reg or Patrick checks the details on the waybill to the sticker on the box in the presence of the Roadline employee. Both sign the waybill as evidence of this check.

  • Copy 3 and 4: go to the customer who signs them to acknowledge receipt of the delivery and returns one to Roadline as proof of delivery.

10.4 Receipts - How the system works at ProRide (Pty) Ltd

• All of ProRide (Pty) Ltd's debtors pay by EFT. No debtors pay cash directly to ProRide (Pty) Ltd, but a number of the general dealers in rural areas still deposit cash directly into the company's bank account.

10.4.1 Recording and entering receipts from debtors

10.4.1.1 Recording direct deposits and electronic transfers into the bank account

• Judith Oldman (credit manager) accesses the company's bank account via the Internet and downloads a bank statement every morning.

• The bank statement is passed to Amy Mostert (debtors clerk) who, assisted by other debtors clerks when necessary, compiles a preprinted "electronic receipts input sheet".

• All debtors are requested to enter their name and account number as a reference when depositing or transferring money into ProRide (Pty) Ltd's bank account and to (preferably) email a remittance advice advising exactly which invoices are being paid.

• The electronic receipts input sheet is then checked by a second debtors clerk and signed by both debtors clerks.

10.4.1.2 Entering the receipts onto the system

• The intention is to maintain an up-to-date debtors masterfile. As debtors are debited in "real time" when the invoice is created, it is important that receipts from debtors are also processed as soon as possible. To achieve this, Amy updates the debtors masterfile on the AS 400 every day. To do so, she does the following:

  • Accesses the sales application in the normal manner (user ID and password) and selects the "process receipts" module from the menu that appears on the screen and is tailored to her user profile.

  • On keying in a debtors account number (taken from the receipt input sheet), the screen will reveal the debtor's account including a list of the unpaid invoice numbers on the account.

  • Amy will select the invoice in respect of which the payment has been received and enter the amount that was paid and is recorded on the electronic receipts input sheet into the designated field.

  • If the amount entered does not agree with the amount of the invoice on the system, an on-screen message will appear requesting Amy to confirm the amount. If there are differences between the invoice and the payment received, the detail will be written to a report for subsequent follow up by the debtors clerks. (Note: Debtors do not always pay exactly the amount owed; the debtor may make a mistake, or take a discount, etc.)

  • Once Amy has entered all the receipts from a specific debtor, she will move to the next debtor.

  • If no invoice is listed on the debtor's account in the masterfile against which the receipt can be matched, the receipt is not processed to the debtor's account but is written to a suspense account and subsequently followed up by Amy.

  • When all receipts have been processed, the computer will produce a report showing the total of all amounts entered, broken down into amounts posted to individual debtor's accounts and the suspense account (if any). Amy will agree the total of all amounts entered to the totals on the two receipt input sheets and resolve any discrepancies.

  • The system will also produce a listing of all invoices in respect of which the amount received was not correct in terms of the amount reflected on the invoice.

  • As each receipt is processed, the debtors masterfile and the general ledger accounts are updated.

10.4.1.3 Independent reconciliation

• Every Friday afternoon, Johan Els (the financial manager) extracts a report of daily receipts processed to the masterfile from the system for the preceding week, and reconciles it to the remittance register, the receipt input sheets, and the bank statement.