AIBYT2C – Blackboard content
Learning Unit 1- Sales & Collection Business Process
A. Value System level
The Sales & Collection Business Process is sometimes called the Revenue transaction cycle, or
the order to cash process. As you analyse and model a business process, you must clearly
understand its purpose and objectives. You must realize how the business process fits into the
value system of the enterprise as a whole. At the value system level, the sales & collection
process is the point of contact between the customer and the enterprise. Goods & Services
flow from the enterprise to the customer; cash flows from the customer to the enterprise.
B. Value Chain level
The value chain reveals interfaces between the sales & collection process and other business
processes.
There are 4 types of enterprises, in terms of how their sales & collection process are done:
1. Retail businesses
2. Manufacturing businesses
3. Service delivery businesses
4. A combination of Service and Retail.
Based on which category a business falls into, the value chain diagram will differ. Goods and
services are made available to an enterprise's revenue process as a result of the conversion,
acquisition & payment, and payroll processes; the revenue process turns those goods and
services into cash, which in tum is made available to the financing process. To turn the goods and
services into cash, the revenue process must include at least one economic event that transfers
out the goods and services (economic decrement), and at least one economic event that
transfers in the cash (economic increment).
C.
Business Process Level
a) Business Process level
The extended REA ontology as shown in the attached picture, identities the pattern underlying each
transaction cycle, which consists of instigation events, mutual commitment events, economic
exchange events(at least one economic increment and one economic decrement event), resources,
agents, types, and various relationships such as stockflow, duality, fulfilment,reservation,
proposition, and participation.
In this section we describe the extended REA ontology components specific to the sales & collection
business process. The REA pattern aids in analysing business processes and events by highlighting
the what (the resources that are involved in the event) and the who (the internal and external
agents participating in each event) of each event. The where and the when of events, are often
stored as attributes of the different events. The events, agents and resources involved in the sales &
collection process vary somewhat from enterprise to enterprise. The general pattern discussed in
this section, however can be easily adapted and applied to meet the exact requirements of any
enterprise. The different enterprises can be non-profit or governmental agencies, wholesalers,
bartering arrangements, catalogue sales, cash sales, retailers, service providers, prepaid sale
activities, or manufacturers.
b) Instigations Events (Marketing Events, CustomerInquiries)
Instigation events may be internally instigated (by the enterprise) or externally instigated (by an
external business partner of the enterprise). The sales & collection process is instigated by the
attraction of a customer’s decision to buy the enterprises goods and services. In an effort
to influence customer decision making, an enterprise plans, executes and evaluates a variety of
marketing events (for example: sales calls, advertising campaigns or promotions) intended to inform
customers about products and or services and hopefully influence them to trigger the sales &
collection process. Therefore marketing efforts are typically considered to be internally
generated instigation events. Other times customers know they want a particular product or service
and they search for a source for that product or service. They may call an enterprise to see if the
product or service they want or need, is available, without having participated in a marketing event.
Such customer inquiries are externally generated instigation events. Quotes or bids may be
provided to the customer as part of instigation events.
Agents involved in instigation events usually, are sales/marketing personnel or customer service
representatives (internal agents) and customers (external agents).
Typically there is no need to specifically identify a good or service for purposes of instigation events;
all that is needed is information about the type of good or service promoted. Of course, some
enterprises have atypical or unusual circumstances and may therefore involve different agents
and/or may require specific identification of goods and services being marketed.
Attributes of instigation events that should be captured, include the date, time and location of the
event, and the duration of the customer contact.
Documents: Data regarding sales call instigation events are often captured on a sales call form such
as below. This form may be either a paper document or part of a software application interface. In
either case, similar data are captured and stored.
Relationships in which the instigation event participates typically includes:
proposition, fulfillment and participation.
c) Mutual Commitment Events (Customer Orders, Rentals, ServiceAgreements)
A mutual commitment event exists if the enterprise and any of its external business partners have
agreed, or made a commitment to exchange resources at a defined time in the future. In the sales &
collection process the most common mutual commitment events are customer orders, rental
agreements and service agreements. A mutual commitment doesn’t always happen at a discrete
point in time, but it can involve a series of activities. Typically a customer (the external agent) places
an order with the enterprise for certain goods or services. It is normally not necessary to specifically
identify the exact item, or service a customer wants, it is good enough to link the order with the type
of good or service. For example, a customer might order a specific type of laptop, he does not order
a laptop with a specific serial code. So it is the information about the type of good or service
promised to the customer that is captured.
Sales or customer service representatives and/or order entry clerks (internal agents) assist the
customer and collect the order data. The enterprise determines whether to commit by checking the
availability of requested goods or services, verifying all price and date information, and contacting
the customer if necessary to adjust pricing or dates promised. The enterprise also determines
whether to extend credit to the customer; therefore a credit manager also may serve as an internal
agent. These determinations are important because the enterprise does not want to commit unless
it is confident that both parties can fulfil their parts of the sales transaction (that is: the enterprise
must have the ability to fill the order and the customer must have the ability to make payment).
Once the customer‘s order is approved, it will become an accepted sale order and is considered a
mutual commitment event.
Ideally an enterprise wants to be able to trace each sale order (mutual commitment event) to a sales
call or other instigation event. Sometimes it is impossible to determine which marketing efforts led
to commitments for an enterprise; in such cases the fulfilment relationship is typically not
materialized. For other enterprises, commitments typically occur only as part of marketing events;
for example, vacation ownership, or timeshare sales. In those rare cases, the commitment and
instigation events may be collapsed into a single entity. Linking the marketing efforts to the
commitment event provides valuable information to evaluate marketing effectiveness.
Attributes of mutual commitment events that typically should be captured include the date, time
and rand amount of the order; the date by which the customer needs the goods or services
delivered; the delivery method to be used (e.g., by courier, post or customer pick up); the desired
location of the delivery; and the payment terms. The order data should also be able to be linked to
data regarding the related resources, agents, and economic decrement events, and, if possible, to
the related instigation event.
Documents: Data regarding sale order commitment events are often captured on a sale order form
as shown below. This form may be either a paper document or part of a software application
interface that is used to update the enterprise database.
For many enterprises, the data for sales orders are obtained from a customer purchase order form,
commonly referred to as a customer order. The primary difference between a customer order and
a sale order is that the customer order is in the customer’s format, whereas the sale order is in the
seller’s format.
d) Economic Decrement Event (Sale, Shipment, Rental, or Service Engagement)
The economic decrement event in the sales & collection process may take on one of several labels
because it represents the revenue generating activity, which can take various forms. The revenue
generating activity is the decrement event; resources made available to the revenue cycle by the
acquisition and/or conversion cycles must be given or used up in exchange for the resource (usually
cash) received from external partners. Usually the enterprise gives up goods, services, or the
temporary use of goods. If the revenue generating activity involves the sale of merchandise, the
event may be called Sale, Delivery, or Shipment depending in part on whether the customer is on
site to accept possession of the goods or whether the enterprise must deliver or send the goods to
the customer.
The important thing to remember, is that a decrement event that represents the sale of goods must
represent the point at which ownership to the merchandise transfers from the seller to the buyer. I
ownership has not transferred, then no decrement has occurred and the sale event cannot be
captured.
If the enterprise sells services rather than goods, then the resource given up to the customer is a set
of employee services, making those services unavailable to provide to someone else. Such
decrement event is usually called Service Engagement, or even something that more specifically
describes the kinds of services performed by the enterprise, such as Repair service, cleaning service,
audit service etc.
Where an enterprise rent merchandise to customers, the economic decrement event is usually
called Rental. The rental event does not involve the transfer of ownership of goods, but instead
involves a transfer of the right to use goods for an agreed length of time.
Economic decrement events in the revenue cycle do not always happen at a specific point in time,
they are often made up of a series of workflow activities. Once a mutual commitment is made, the
enterprises fulfilment of that commitment is accomplished by the tasks that make up the economic
decrement event. For enterprises that sell or rent goods that must be sent to the customer’s
location, these tasks include picking the inventory from the warehouse, packing it into boxes, and
shipping (sending) the boxes to the customers address. The rental event also includes receiving the
goods back, inspecting it to see that it is still in a good condition and then returning it to the
warehouse. For enterprises who sells services the Economic decrement involves employees who
perform the services. Some enterprises may have multiple revenue generating activities. For
example, some enterprises ship finished products to customers and also provide services. Some
enterprises may have various combinations for different customers. For example, a computer
manufacturer may send a new computer by courier to the customer, and for the next customer they
deliver the computer and assist with installation, and convert existing applications for processing on
the new computer. Yet another customer may request that enterprise to repair a computer that the
enterprise had previously sold to the customer. The different events may need to be recorded as
separate entities in the REA business process level model, or they may be combined in one economic
decrement event entity. The appropriate representation depends on the data captured regarding
each different decrement event.
If different attributes are needed for the types of decrements, usually they should be represented as
separate event entities, each participating in the duality relationship with the appropriate economic
increment event.
Documents: Several documents often are prepared in conjunction with the Economic decrement
event 1. Picking slips - a document that identifies the goods taken out of the warehouse and made
available to be delivered. Other names for this document is picking ticket, pick list and picking list.
A picking slip is prepared by the sale order clerk and sent to the warehouse to authorize an inventory
clerk to pick the goods out of the warehouse, the warehouse clerk then completes the picking slip.
Sometimes a picking slip is just a copy of the sale order, where the quantity ordered is then changed
to the quantity picked. The goods when picked from the warehouse is then transferred to the
delivery area.
2. Packing Slip- a document that identifies the goods that have been delivered to a customer. Often
the packing slip is a copy of the picking slip, where the delivery clerk fills in the quantities of each
item packed, notes the discrepancies from the picking list, and sign to indicate transfer of custody of
goods to the courier company or delivery truck.
3. Bill of lading – a document indicating transfer of custody of goods from the enterprise to a
common carrier, but it contains different data from the packing slip. It does not document details
about each type of item delivered and the quantities of those items, the bill of lading documents
details about how many boxes made up the shipment and the dimensions an weight of those boxes.
4. Sales Invoice – a document that communicates to the customer that the enterprise has fulfilled its
commitment and requests the customer to remit payment to fulfill its commitment. If the customer
already paid for the goods, the invoice shows that no balance is due.
Enterprises does not have to use all of these documents and can combine some of the actions
described above into one action.
Relationships in which the economic decrement event participates are typically: Fulfilment (to see
which commitment event was fulfilled), duality (to track which economic increment event fulfilled
the economic decrement event), stockfow (to track which resource was given up) and participation
(to track who the agents are that took part in the event).
e) Economic Increment Event (Cash Receipts)
Cash Receipts are economic increment events that increase the enterprise's cash balance. Cash
Receipts may take the form of cheques, currency or even an electronic funds transfer. Cash Receipts
may occur at various times during the sale & collection process. Some cash receipts may occur as
orders are placed (as deposits), other cash receipts may happen at the point of sale, or at the
delivery of goods. Other cash receipts may even be days or weeks after the sale took place.
Two documents are typically involved in activities that makes up the cash receipt event.
1. Remittance advice: a document (usually the portion of a customer invoice that says "Return this
with payment"), that advises the enterprise the customer is remitting payment.
2. Deposit slip: a document summarizing all payments for a prescribed time period. the deposit slip
and payments are deposited into one of the enterprises bank accounts.
Attributes captured regarding cash receipts usually include a cash receipt identifier (as a remittance
advice number), date, amount received, customer identification, employee identification, the
account number where the money is deposited, location of payment. Some enterprises link
payments to specific invoices, while others simply apply payments to outstanding balances.
Enterprise systems should include the ability to record a cash receipt without linking it to specific
customers. Because the cash receipt table will also be used in other business processes like
financing, it is not to say that cash will always be received from customers. It can also come from
other sources than a customer. It is also possible that a customer made a payment, but it cannot be
traced, who made the payment. This money must still be abled to be deposited, even without
linking it to a specific customer. This will then be marked as "unapplied cash".
The system should handle customer payments in one of two ways:
1. Specific invoice - Payments will be linked to specific sales invoices.
2. Balance forward - A customer's outstanding balance is calculated, and the payment is subtracted
from the outstanding balance.
f) Economic Decrement Reversal Event (Sales Returns and Sales Allowances)
Unfortunately, goods are not always acceptable to customers for various reasons. Three options are
available to handle this situation.
1. The enterprise may allow the customer to keep the product and receive an adjustment /
allowance in the price. This means that the customer will then have a credit balance with the
enterprise.
2. The enterprise may allow the customer to return the product and decrease the customer's
account receivable or issue a cash refund.
3. The enterprise may decide to not allow returns - the all sales final approach.
Although the return increases the inventory resource, it is inherently different from an economic
increment event. In effect, the return reverses the sale event, which was an economic decrement
event. That is why it is called an economic decrement reversal event.
Documents:
1. Return authorization: a document that gives permission for the customer to return merchandise
and is typically prepared in response to a customer’s request to return goods. It also indicate what
items have been returned.
2. Receiving report: a document completed by by the inventory or receiving clerk when returned
goods are received from customers. It lists the items and the quantities and condition of each item
received.
3. Credit memo: an internal document communication to the accounting department that a journal
entry needs to me made with a credit to the customer's account.
g) Extended Business process level diagram pattern
D. Information Needs and Measures
In this part of the learning unit, you need to be able to identify the kind of information needs and
enterprise may have, specific to the sales and collection business process. You also need to identify
which entities and relationships will be needed to create a query for a specific information need. A
few examples will follow:
1. The first kind of question that you can expect is to identify the entities and or relationships that
you are going to need to create a query to get the following information:
Example: What is the address of the customer who placed order 6?
The first thing you need to determine is from which business process this information will come: This will be from Sales and Collection as it is about a customer order.
In Sales and Collection you have the following entities: Qoutation, SaleOrder, Sale, CashReceipt,
Goods, Cash, Customer, Employee. Which of these entities will now be the ones that contain the
data to be able to answer the question above?
We need the customer address - that will be in the customer table.
We need to check who placed order 6, that will be in the SaleOrder table.
So to answer the question, you will use the Customer and SaleOrder tables.
The participation relationship is between these two entities, so it will also form part of your answer.
2. The second kind of question is the same as (1), but you also need to identify the attributes that
you will need to use in a query
We need the customer address - that will be in the customer table.
We need to check who placed order 6, that will be in the SaleOrder table.
So to answer the question, you will use the Customer and SaleOrder tables, and the participation
relationship.
So what about the attributes? In this case we need to look for order 6, so we will use the
OrderNumber, then we need to check what the customer Number is for that order, and then in the
customer table, we search for that customer Number and look up the customer address.
The attributes will thus be: OrderNumber, CustomerNumber, Customer Address.
3. The third kind of question is where you are given certain tables/entities, and you have to come up
with a report that will use these entities
For Example: What report can be created from the Inventory, stockflow and SaleOrder tables?
In this scenario you just have to think about the attributes that appear in each table, and then decide
on a report that will use those attributes.
The following can all be correct answers for the above question:
1. Show the products that have never been ordered.
2. How many items was ordered for item 6, on order 1, and what is the product description for
that?
3. Give the names of the five products that have been ordered the most in the previous month.