DBD: Order Processing - Postage Special Charge Method
DBD: Order Processing - Collecting And Prepaying Postage (Special Charge Method)
🔵 Overview Procedure for depositing a check from a customer for prepayment of postage and also for issuing a check to a vendor for a prepayment of the customer's postage.
Step 1: Create the Order
Create an order number and assign the customer in the order header. Proceed to the lines portion. Enter line Number 010 (or whatever line you believe would be appropriate for postage to appear on your customer's invoice). Issue a PO code for a special charge line. Enter the Special Charge code "POSTAGE" which will have a description called Postage. Enter the total in the sell and also in the cost. Enter the Vendor code for the vendor to whom you will be cutting the check, and then exit out of the order. The rest can be entered as the information becomes available.
Step 2: Deposit the Customer's Check
When you get the check from the customer, enter a cash receipt. Choose the option during cash receipts to "Pre-pay Invoice" using the order number from above. This will enter an amount on account assigned to the specific order.
Step 3: Prepay the Vendor
Follow the detailed procedures for entering prepayments. Basically, it involves printing a manual check. You enter PP (for prepayment) and the order number (for the order you just created) as the invoice number.
⚠️ CRITICAL UPDATE NOTE: The invoice amount is ZERO. This is important. The payment amount is the amount of the check that is required. This will result in a credit on that vendor's account for the amount of the payment (zero invoice less payment = credit for the amount of the payment).
Step 4: Add the Order Notepad Reminder
When the Account Manager opens the order again and completes entering the other line items of the order, he or she should enter an order notepad with the following:
To Billing: PO receive $$$.$$ on vendor invoice PPOOOOOO (where OOOOOO is the order number).
Step 5: Receiving the Vendor's Invoice
At the time the vendor invoices for the services provided, Billing will PO receive their invoice. As you would have already paid for the postage, I assume they will not invoice you for the postage. Therefore, the order notepad above will alert the operator that they need to PO receive the postage. Since the vendor invoice that was already created in manual check entry will have a credit balance, this PO receiving will have the effect of adjusting the original zero invoice to the actual amount, which will bring the invoice balance to zero.
If the vendor does actually invoice for the postage, then the procedure changes in that you would use the actual vendor invoice number. Then you would have an actual invoice and the PPOOOOOO credit. At the time of cash disbursements the operator should select the invoice and the credit so that they can be applied together.
💡 Note: There is a feature that provides for not only showing the deposit on the customer invoice, but deducting the deposit from the total invoice and showing a balance. You may want to implement this customer invoice format.
General Ledger Postings
At the time you enter the on account amount for your customer's prepayment, the entry to your General Ledger will be:
DR Cash X,XXX.XX CR Accounts Receivable X,XXX.XX
💡 Note: This happens automatically as a result of creating an on account balance, you do not have to enter any GL accounts.
When you enter the prepayment to the vendor the posting to the GL will be:
DR Accounts Payable X,XXX.XX CR Cash X,XXX.XX
💡 Note: This happens automatically as a result of creating an on account balance, you do not have to enter any GL accounts.
At the time you PO receive the vendor's invoice and bill the customer the posting to the GL (relative to the postage) will be:
DR Cost of Postage X,XXX.XX CR Postage Billings X,XXX.XX
Prerequisites for This Procedure
- Set up GL accounts for each division for "Postage Billings." This should be in the revenue section of your P&L.
- Set up GL accounts for each division for "Cost of Postage." This should be in the Cost of Sales section of your P&L.
- Set up a Special Charge Code called "Postage" and create a GL distribution Code called "Postage" to post to the above accounts.
💡 Note: If you are billing your customers for postage, then the postage billings will appear on the sales analysis reports. If you wish to compare the sales and gross profit totals on these accounts to your general ledger, then the billings need to be included in revenue and the postage costs need to be included in cost of sales. We can isolate these transactions into their own separate accounts so they can be eliminated, as these are only pass through charges and not actual "sales."
Postage may be handled in other ways. If your customer prepays postage that will be applied to a number of jobs, and you release the postage as used, then you may wish to follow a separate procedure that treats the postage as customer owned inventory.
Frequently Asked Questions
Q: How is postage entered on the order in this method?
A: As a special charge line using the Special Charge code "POSTAGE," with the total entered in both sell and cost, and the vendor code for whoever you'll be cutting the check to.
Q: What happens when the customer's check comes in?
A: Enter a cash receipt and choose the 'Pre-pay Invoice' option using the order number, which creates an amount on account assigned to that order.
Q: How do I prepay the vendor for the postage?
A: Print a manual check using PP plus the order number as the invoice number, with the invoice amount set to ZERO — the payment amount equals the check amount, creating a credit on the vendor's account.
Q: Why does the order notepad need a PO-receive reminder?
A: Since the vendor won't invoice for postage you already paid, the notepad alerts the operator to PO receive the postage anyway, which adjusts the original zero invoice to the actual amount and zeroes the balance.
Q: What if the vendor does invoice for the postage after all?
A: Use the actual vendor invoice number instead. You'll then have both a real invoice and the PPOOOOOO credit, which the operator applies together during cash disbursements.
Q: Do I need to manually enter GL account distributions for the deposit and prepayment?
A: No — the Cash/Accounts Receivable entry for the customer deposit and the Accounts Payable/Cash entry for the vendor prepayment both happen automatically as a result of creating the on-account balances.
Q: What prerequisites are needed before using this procedure?
A: GL accounts per division for Postage Billings (revenue) and Cost of Postage (cost of sales), plus a Special Charge Code called Postage with a matching GL distribution code.
Q: How does this differ from treating postage as customer owned inventory?
A: This method uses a special charge line and manual check/pre-pay invoice mechanics for one-off postage. If a customer prepays postage to be applied across multiple jobs over time, the customer-owned-inventory procedure is the better fit instead.
Tags: order-processing, postage, special-charge, prepayment, accounts-payable, DB-distributor