Understanding Financial Transactions
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Table of Contents
What are Financial Transactions?
A Financial Transaction is an agreement between a buyer and a seller to exchange Services or Physical Goods for payment. The transaction’s nature is differentiated by its Type (Invoice, Credit Note, Payment, Refund etc.). It involves a change in the status of the finances of the businesses or individuals involved, which is directly reflected on the customer's Accounts Receivable by updating its Balance.
Financial Transactions Glossary
Terms | Description |
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Financial Transaction Classification | The Classification determines the nature of the Financial Transaction, including its notation in the double-entry accounting system (debit or credit). Financial transaction type classifications are predefined in the system and cannot be overridden. The following Classifications are available:
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Payment | A Payment is a financial document issued by a customer to a business to settle an outstanding balance. Payments are crediting Accounts Receivable |
Invoice | An Invoice is a financial document that shows a list of services or physical goods and the prices to be paid for them. Invoices are debiting Accounts Receivable |
Credit Note | A Credit Note is a financial document issued by a business to a customer to correct mistakes or adjust the amount that the customer was invoiced. Credit Notes are crediting Accounts Receivable |
Refund | A Refund is a financial document issued by a business to a customer in order to pay back a specific amount of money. Refunds are typically issued to customers who are not satisfied with the Services or Physical Goods that were provided to them and not to adjust or cancel specific Invoices. Refunds are debiting Accounts Receivable |
Invoice Cancellation | An Invoice Cancellation is a financial document which is issued to cancel a specific Invoice. Invoice Cancellations are crediting Accounts Receivable |
Payment Cancellation | A Payment Cancellation is a financial document which is used to cancel a specific Payment. Payment Cancellations are debiting Accounts Receivable |
Financial Transaction Life Cycle State: 'Draft' | A 'Draft' Life Cycle State represents a Financial Transaction which is not yet posted, and can still be edited, posted or rejected in the future. Financial Transactions in a 'Draft' Life Cycle State do not affect the Accounts Receivable Balance. |
Financial Transaction Life Cycle State: 'Posted' | A 'Posted' Life Cycle State represents a Financial Transactions that can no longer be edited. Financial Transactions in a 'Posted' State affect the Accounts Receivable Balance. |
Financial Transaction Life Cycle State: 'Rejected' | A 'Rejected' Life Cycle State represents Financial Transactions that went from being 'Draft' to being ''Rejected'' instead of being 'Posted'. 'Rejected' Financial Transactions cannot be edited and do not affect Accounts Receivable Balance. |
Due Date | The date by which an Invoice must be settled. Due Date is set either manually or automatically and must always meet predefined configurable system rules. |
Issued Date | The date on which a Financial Transaction is issued, either in a 'Draft' or 'Posted' Life Cycle State. |
Posted Date | The date on which a Financial Transaction is 'Posted'. |
Financial Transactions Key Processes and Concepts
Processes / Concept | Description |
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'Cancelling' Vs 'Rejecting' Financial Transactions | Financial Transactions cannot be deleted. If they have been created accidentally, then this can be corrected by using the 'Cancel' or 'Reject' action. Neither action will be taken into consideration by any of the system's financial processes.
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Posting of Financial Transactions | Financial Transactions created in 'Draft' Life Cycle State by using the Save As Draft button can be posted at a later stage by using the ' Post' action.Alternatively, you can set the Life Cycle State of a Financial Transaction directly to 'Posted' by using the SAVE button instead of Save as Draft
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Allocation of Credit Transactions on Invoices | Allocations are used to allocate Credit Financial Transactions against Invoices, in order to settle any outstanding amount. Allocations are applied automatically by the System based on the allocation principle specified on the active Accounts Receivable Definition. View Accounts Receivable as well as Understanding the Allocation Principles for a description of how the allocation principle works in CRM.COM |
Financial Transactions Access & Viewing Controls
Business Network Characteristics define the level of access for each record. i.e., whether the record will be available for selection, viewing or editing.
Entity | Network Characteristics | Description |
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Financial Transaction Types |
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Financial Transactions |
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Financial Transactions Related Modules
Entity | Interaction with the Entity |
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Accounts Receivable | Financial Transactions are Posted against Accounts Receivable. The balance of the account is updated when Financial Transactions are posted |
Bills | Financial Transactions are included in the Bill as Bill Lines |
Wallet Transactions | Financial Transactions can be related with Wallet Transactions via the Wallet related to the Accounts Receivable. i.e. if configured accordingly, whenever a Financial Transaction is created against the Accounts Receivable, a respective Wallet Transaction can be created against the Wallet. |
Financial Transactions - Business Examples
The following section provides business examples of how the Financial Transactions module is used in CRM.COM.
Posting Refunds after Bank Payment confirmation
Business Requirement
Company ZX would like to create Refunds once a month for its customers with a negative outstanding balance. The Refunds are paid out to the customers through their bank account. Once the bank makes the Payment to the customer's account, the bank sends a file back to Company ZX with all the successful Payments. Company ZX can the update the customer's accounts balances.
CRM.COM Solution
- User Process
All the Refunds should be created in a 'Draft' Life Cycle State and be sent out to the bank. Once the file with the successful Payments is received from the bank, the Refunds should be updated to 'Posted', (automatically) updating the Balance of the account by that amount.
More Information on Posting Refunds can be found at Managing Financial Transactions.
Cancelling Invoices created by Error
Business Requirement
Company ZX would like to cancel 'Posted' Invoices that were created by error.
CRM.COM Solution
- Configuration
An 'Operations' user should be responsible for cancelling Invoices created by error. 'Admin' users can configure different types of 'Invoice Cancellation Classified Transactions', in order to differentiate between reasons for cancelling an Invoice. For example, Cancellation Error Invoices & Cancellation Complaint Invoices.
- User Process
The user should select the Invoice to be cancelled and create a Financial Transaction of the appropriate Type.
As a result, the Invoice will be available for future reference without affecting the account's Balance. The Financial Transaction 'Invoice Cancellation Type' indicates the reason the Invoice was cancelled. More detailed information can be viewed through the Cancellation's Issue Reason.
More Information on Cancelling Invoices can be found at Managing Financial Transactions.
Cancelling Payments created by Error
Business Requirement
Company ZX would like to cancel Payments that are already 'Posted' that have been created by error.
CRM.COM Solution
- Configuration
An 'Operations' user should be responsible for cancelling such Payments. 'Admin' users can configure different types of 'Payment Cancellation Classified Transactions', in order to differentiate between different reasons for cancelling a Payment. For example, Erroneous Payments Cancellation & Erroneously Allocated Payments Cancellation.
- User Process
The user should select the Invoice to be cancelled and create a Financial Transaction of the appropriate Type.
As a result, the Payment will be available for future reference without affecting the account's Balance. The Financial Transaction 'Payment Cancellation Classification' indicates the reason the Payment was cancelled. More detailed information can be viewed through the Cancellation's Issue Reason.
More Information on Cancelling Payments can be found at Managing Financial Transactions.
Move Payments from Suspense Account to Customer Accounts
Business Requirement
Company ZX imports Payments from the bank through an import file.
If the intended account is not found the Payment will be created in Company ZX system Suspense account. Back office personnel are responsible to manually check and move the Payments to the correct customer account.
CRM.COM Solution
- User Process
Back office operators should follow the process described below:
Company's ZX Back office personnel should access Company's ZX suspense account daily. The action "Move to Account" should be executed for each of the Payments once the intended account has been determined.
More Information on Move Payments from Suspense Account to customer accounts can be found at Managing Financial Transactions.
Company ZX issuing an Invoice with a Discount
Business Requirement
A customer of Company ZX purchases 2 Cards. He gets a discount for both, 15% for the first one and €20 for the other one. One of the two cards is charged a VAT rate of 0%.
CRM.COM Solution
- User Process
Create a new Financial Transaction of Type Invoice. In the Items tab add 2 lines with the following information
- Card 1
- Cost: 100
- Quantity: 1
- Discount
- Discount Percentage: 15%
- VAT Rate
- VAT rate:15%
- Card 2
- Cost: 100
- Quantity: 1
- Discount
- Discount Amount: €20
- VAT Rate
- VAT rate: 0%
System Calculations:
- Card 1
- VAT Amount: (100-15)*15/100 = 12.75
- Subtotal: (100-15+12.75) = 97.75
- Card 2
- VAT Amount: 0
- Subtotal: 80
- Card 1
More Information on Issuing Invoices can be found at Managing Financial Transactions.
Company ZX - Invoice Due Dates - Fixed Date
Business Requirement
Company ZX wants the 15th day of the month as the Invoice 'Due Date'.
CRM.COM Solution
- Configuration
The Accounts Receivable Credit Rule should be set up defining the nth day to be equal to 15 after x months are equal to 1.
User Process
When Posting the Invoice:- If the user defines a date, the system either validates the date or returns an error message. e.g. In case the Date of Posting is on 20 May:
- If the 'Due Date' is Set to 21/05 an "Invalid Due Date" message is returned from the system
- If the 'Due Date' is Set to 16/06 an "Invalid Due Date" message is returned from the system
- If the 'Due Date' is Set to 15/06 no error message is returned and the 'Due Date' is saved successfully
- If the user leaves the 'Due Date' empty the system will set it to 15/06
Business Requirement
Company ZX would like to have the 'Due Date' always set 10 days after the 'Posted Date'.
CRM.COM Solution
- Configuration
The Accounts Receivable definition 'Credit Rule' should be set up defining X Days after the transaction's 'Posted Date' ( X = 10)
- User Process
When Posting the Invoice:
- If the user defines a date, the system either validates the date or returns an error message. e.g. In case the Date of Posting is on 20 May:
- If the 'Due Date' is Set to 28/05 an "Invalid Due Date" message is returned from the system
- If the 'Due Date' is Set to 31/05 an "Invalid Due Date" message is returned from the system
- If the 'Due Date' is Set to 30/06 no error message is returned and the 'Due Date' is saved successfully
- If the user leaves the 'Due Date' empty then the system will set it to 30/06
- If the user defines a date, the system either validates the date or returns an error message. e.g. In case the Date of Posting is on 20 May:
Business Requirement
Even though Company ZX would like to allow agents to set the 'Due Date' at a maximum of 10 days after the 'Posted Date', it requires the System to set the 'Due Date' to 5 days after the 'Posted Date'.
CRM.COM Solution
- Configuration
The Accounts Receivable definition 'Credit Rule' should be set up defining X Days after transaction's 'Posted Date' (X = 10)
Proximity range should be set to -5
- User Process
When Posting the Invoice:
- If the user defines a date, the System either validates the date or returns an error message. e.g. In case the Date of Posting is on 20 May:
- If the 'Due Date' is Set to 28/05 no error message is returned and the 'Due Date' is saved successfully
- If the 'Due Date' is Set to 31/05 an "Invalid Due Date" message is returned from the system
- If the 'Due Date' is Set to 30/06 no error message is returned and the 'Due Date' is saved successfully
- If the user leaves the 'Due Date' empty then the system will set it to 25/05 (the smallest allowed 'Due Date' based on the set 'Proximity Range')
- If the user defines a date, the System either validates the date or returns an error message. e.g. In case the Date of Posting is on 20 May:
More Information on Invoice Due Dates can be found at Handling Invoice Due Dates.
FIFO Versus FIFO & Against Item Principle
FIFO Principle
In the following example, we have one Invoice which has already been allocated to a Credit Note using the FIFO model. After a second Invoice is created the first Invoice is cancelled.
- Invoice 1: €20
- Invoice 2: €10
- Credit Note 1: €20
No | Action | Intended Invoices | Allocations | Allocation Type | Allocation amount | Unallocated Amount |
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1 | Creation of Invoice 1 | N/A | N/A | N/A | ||
2 | Creation of Invoice 2 | N/A | N/A | N/A | ||
3 | Creation of Credit Note 1 | N/A | Credit Note 1 allocated on Invoice 1 | FIFO | 20 | |
4 | Cancellation of Invoice 1 | Invoice 1 |
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4a | Credit Note 1 de-allocated from Invoice 1 | N/A | N/A | De-allocation | 20 | |
4b | Creation of Cancellation Invoice 1 | N/A | Invoice 1 allocated on Cancellation Invoice 1 | Against Item | 20 | |
4c | Credit Note 1 allocated on Invoice 2 | N/A | Credit Note 1 allocated on Invoice 2 | FIFO | 10 | 10 |
FIFO & Against Item Principle
In the following example, we have 3 Invoices of which the 2 first are allocated from Credit Notes that were intended for the invoices in question. The first Invoice is then cancelled.
- Invoice 1: €10
- Invoice 2: €20
- Invoice 3: €20
- Credit Note 1 : €10 (Intended Invoice: Invoice 1)
- Credit Note 2 : €20 (Intended Invoice: Invoice 2)
No | Action | Intended Invoice | Allocations | Allocation Type | Allocation amount | Unallocated Amount |
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1 | Creation of Invoice 1 | N/A | N/A | N/A | ||
2 | Creation of Invoice 2 | N/A | N/A | N/A | ||
3 | Creation of Invoice 3 | N/A | N/A | N/A | ||
4 | Creation of Credit Note 1 | Invoice 1 | Credit Note 1 allocated on Invoice 1 | FIFO and Against Item | 10 | 0 |
5 | Creation of Credit Note 2 | Invoice 2 | Credit Note 2 allocated on Invoice 2 | FIFO and Against Item | 20 | 0 |
4 | Cancellation of Invoice 1 |
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4a | Credit Note 1 de-allocated from Invoice 1 | N/A | De-allocation | 10 | 0 | |
4b | Creation of Cancellation Invoice 1 | Invoice 1 allocated on Cancellation Invoice 1 | Against Item | 10 | 0 | |
4c | Credit Note 1 allocated on Invoice 3 | Credit Note 1 allocated on Invoice 3 | FIFO | 10 | 10 |
More Information on FIFO Versus FIFO & Against Item Principle can be found at Understanding the Allocation Principles.
Payment Methods accepted by Company ZX
Business Requirement
Company ZX only allows its customers to pay using Cash and Credit Cards. It wants to introduce a new way of Payment in order to allow customers to also pay via PayPal. This type of Payments would need to be distinguished on the Payment level as more types of online Payment other than Paypal might be added in the future.
CRM.COM Solution
- Configuration
Three Payment Types will need to be configured in the system:
- Cash
- Credit Card
- PayPal
Two different Payment Types should be created in the Financial Transaction Types Configuration Module:
- Normal Payment
- Online Payment
For each of the 2 Payment Types different Allowed Payment Methods will be configured:
- Normal Payment
- Cash
- Credit Card
- Online Payment
- Paypal
More Information on Payment Methods can be found at Configuring Payment Methods.
Rejecting Payments Options
Business Requirement
Company ZX allows Payments to be rejected in the following cases:
- Agent Error
- System Error
- On customer request
CRM.COM Solution
- Configuration
The following four reasons for Payment rejection should be set up for use in the system:
- Agent Error
- System Error
- On customer Request
- Other (the user can give an explanation for the rejection in the "Issue Reason" text box
More Information on Rejecting Payments Options can be found at Configuring Rejection Reasons.
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