There are two parts to receivables processing — Sales processing and Cash Receipts processing.
A "sale" starts when you receive a Purchase Order from a customer. That PO may kick off a Shipping Order (an in-house record to ship against) or a Job Order (an in-house record to build and ship against). If you need to send the customer written confirmation of scheduled delivery — or your product's somewhat custom and you want to confirm with the customer (in your terms) what they've ordered — you might consider a Sales Order (a restatement of their PO).
These papers are "operations" records — not "financial" records (although they can be, which we'll get into in later columns when we talk about Inventory accounting). For now, they (or a copy of them) can be simply held in an Customer Open Orders folder until the order is invoiced.
A Customer Invoice is kicked off by some record (which may be one of the above "Orders" from the shipping area) recording when and what was shipped. A customer invoice is prepared and mailed, a Sales Journal source document is prepared, and the sale (i.e., the customer invoice) is recorded in the Sales Journal.
The source document consists of a copy of the customer invoice and whatever "source data" you want to attach to it, e.g., the customer's Purchase Order, your Sales Order, whatever shipment record you've used, etc. If you've shipped only part of the order, you might annotate the line items of the PO/SO in the Customer Open Orders folder with date shipped, attach a copy of them to the invoice (maybe yellow-highlighting the parts shipped), and leave the original PO/SO in the Customer Open Orders folder until it ships completely.
The Sales Journal source document is filed in a Sales Journal Source Document folder, by Invoice-number, for ready reference when payments against that invoice are received.
Cash Receipts Processing
The major problem faced in cash receipts processing is making sure that all the monies coming in from customers really ends up in your bank account
If you (the sole owner) receives and opens the mail, records the cash receipts, prepares and makes the bank deposits, no special procedures are likely required. However, if any employee (or another owner) is involved in any of these steps, procedures similar to those outlined below are recommended.
Receiving and opening the mail (at least that addressed to the company) should be vested in one person (and not the one doing the subsequent receivables processing). Have that person keep a daily log of cash receipts — a simple listing of payer, amount and total — stamp each check with the company's bank deposit stamp, and forward to the person who will be doing the processing.
That person prepares a source document for each cash receipt, in this case just a copy of the check annotated with week received, your invoice-number and anything else you might find useful. They then determine how the transaction should be recorded, record it, file the source documents in a Cash Receipts Source Document folder and put the checks in a safe place (e.g., in a bank bag stuck in the rear of an unrelated file cabinet drawer).
The reason for annotating the Cash Receipts source document with invoice-number is to provide ready reference back to the Sales source document where most of the "source data" for the sale is filed. Note that we could have set up the files so that all source data for the sale ended up in the Cash Receipt Source Document folder — as we set it up in Payables so that all source data for the purchase ended up in the Purchase Disbursements Source Document folder. In Payables, we chose to do it that way because we have control over how and when we make our payments (assuming we have adequate cash to pay our bills).
But in Receivables, we have no control over how our customers choose to pay. Each time our customers paid only part of our invoice, we'd have to attach and annotate a copy of the source data to the Cash Receipts source document and leave the original source data in an Open folder until the invoice was totally paid. That could amount to a lot of superfluous copying. However, if our customers always pay our invoices fully, attaching the source data to the Cash Receipts source document (and avoiding Sales Source Document folders altogether) could make sense.
The point is there is no right or wrong to these decisions — so long as you understand what you're doing and it meets your needs and the needs of others (internal and external) who may reference the data.
It can be argued that the checks should be deposited every day. However, that's a hassle and the risks are minimal. Each check is stamped with a "For deposit only" to your bank account number, so even if they're stolen, the thief is going to have trouble doing anything with them. And you have a good record of them (in both your Cash Receipts Journal and Source Document folder) so you can notify your customers to stop payment on them and issue new checks.
Periodically, e.g., at the end of each week, the Cash Receipts Journal is printed and filed, the checks are pulled, a bank deposit slip prepared, the checks deposited, and the bank's deposit receipt rubber-cemented to the top sheet in the Cash Receipts Source Document folder. If you're computer accounting, the computer can print out the bank deposit data (same program that prints out the Cash Receipts Journal — just different format).
As owner, you should check that the checks-in log, the Cash Receipts Journal and the bank's deposit receipt all match, i.e., all the monies that came in were in fact deposited.
About the only place this system can be "gamed" is at the mail-opening point. The person opening the mail may not stamp some checks and try to cash them himself. That's why you don't want this person involved with the receivables processing (sending out statements, talking to customers about overdue accounts, etc.). It's only a matter of time before this second person catches on to what's happening.
What if the two of them conspire? About all you can do is keep a close eye on your Receivables Aging Statement — and don't be afraid to call on an overdue account yourself!