• Issue electronic data interchange (EDI) invoices. When EDI is used, the company sends an electronic message to the customer, in which is em­bedded an invoice in a strictly defined format. An EDI invoice can be manually entered in EDI software before being sent or can be created and issued automatically by the computer system. Controls are:
  • Verify that acknowledgment EDI has been received. Once the cus­tomer receives an EDI invoice, it should send an acknowledgment of receipt EDI message back to the company. The company’s com­puter system automatically can match sent and acknowledged EDI messages and report on missing acknowledgments. The same con­trol can be conducted manually if the computer system cannot han­dle this chore automatically.
  • Match EDI transmission document to invoice. If the EDI message is keypunched manually into EDI software, then print a confirmation from the EDI software and compare it to the original invoice for data entry errors prior to transmitting the message.
  • Send an EDI statement of account. A standard EDI format for state­ments of account should be used as a backup means of ensuring that the customer has received information about all transmitted invoices.

• Deliver with drop shipments. Drop shipments occur when the com­pany receives an order from a customer and has a supplier deliver the order directly to the customer, bypassing the company entirely. This requires a different billing notification system, since there is no inter­nal shipment system to trigger creation of the invoice. Controls are:

• • Match open customer orders to supplier bills of lading. Since drop shipping involves no internal record of a shipment, the billing trig­ger must be the supplier’s bill of lading. Consequently, the control point is to match open and unbilled customer orders to bills of lad­ing, and to follow up on any customer orders for which shipment documents have not been received from the supplier.

• Deliver into an evaluated receipts system. When a customer operates an evaluated receipts system, it pays based on the prices shown in its purchase order and the quantity delivered-it does not rely upon an in­voice at all, and does not want one delivered. Controls are as follows:
  • Match invoice to payment. The standard control for evaluated re­ceipts is still to have the computer system print an invoice, but to re­tain it and match the cash receipt to the invoice. The problem with this control is that there may be multiple payments being made in the same amount, making it difficult to match payments to invoices.
  • Match payment to invoiced purchase order. An improvement on the preceding control is to include the customer’s purchase order number on each invoice and then match the supplier’s cash receipts and the associated purchase order number to the purchase order number on the invoice.

• Use automated revenue recognition software. An automated revenue recognition system does not provide speedier billing delivery; instead, it ensures that revenue is recognized in the correct proportions in each accounting period, based on the various components of the billed rev­enue. Such software is itself a control, and includes these features:
  • Deferred revenues are scheduled at the time of order entry, includ­ing a recognition schedule for each item. If revenue is recognized based on a milestone, then the system pauses recognition until the milestone is confirmed.
  • Revenue for nondelivered contract components is recognized auto­matically based on established revenue recognition rules.
  • Revenue components (license fees, services, hardware, training, and maintenance) are split apart automatically and allocated to revenue based on established revenue recognition rules.

[tags]advanced billing system, controls billing system[/tags]

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