Kuali Financial System

AR Process Overview

Accounts Receivable (AR) represent money due for services performed or merchandise sold. The university sells goods and services to internal customers (e.g., students, other UC Davis departments) as well as to external, or non-university customers (e.g., individuals and organizations not considered part of UC Davis).

The Process

The AR process involves the following steps:
  1. Receive authorization to sell goods or services (if more than $5,000/year)
  2. Provide a good or service
  3. Invoice for the good or service
  4. Run monthly aging reports
  5. Collect payment, or send billing statements / dunning notices
  6. Write-off as bad debts (as a last resort)

Authorization

In order to sell a product or service, the activity must be pre-authorized. The authorization procedure depends on the type of product or service, frequency, and amount:

  • Billing for less than $5,000.00 annually (total across all customers) - If your department plans to provide goods or services to outside parties under $5,000.00 in a year, department head approval is usually the only approval needed. A business contract from the buyer or from the university is required. See UCD PPM 340-09 for details and exceptions.
  • Billing for $500.00 or more on a one-time basis - Submit a completed Special Sale/Service Authorization form to the Business Contracts Office.
  • Billing for ongoing services or goods - If your department plans to provide ongoing fee-based services or goods to UCD departments, other UC campuses, or to external parties, your department should request a rate (contact your dean’s office for assistance or if you have questions). After a rate has been approved, the General Accounting Division will assign a new fund number for the activity. The fund assigned will belong to a self-supporting sub-fund group. Accounts funded with General Fund dollars are not to be used to record income or recharge credits (39xx objects).
  • Billing for agricultural by-products - Submit a Request for Disposition of By-Products form (See UCD PPM 340-30 for details).

Additional situations (e.g., teaching aids, surplus property, etc.) are addressed in UCD PPM 340-09.

Separation of Duties

As with all financial transactions, separation of duties is essential in AR. Proper separation of duties is maintained when no one person has complete control over all AR functions. The person collecting cash and issuing cash receipts (cash includes checks and credit card transactions) shall be someone other than the person performing the monthly ledger review or the person maintaining accounts receivable records. Departments with accounts receivable are strongly encouraged to have payments sent to the Cashier’s Office, not to the department; pre-addressed return envelopes are available from the Storehouse through UCD Buy. If you would like assistance evaluating or establishing separation of duties, please contact your dean or vice chancellor.

Process and Controls Documentation

In order to ensure there are proper controls in place, departments must complete two documents. The first document is the Controls Documentation Questionnaire. Answers from that document should then be inserted into the Process and Controls Document.

AR Options

UC Davis offers departments several options to manage AR:

Banner - Banner is a centralized accounts receivable system in which the department prepares invoices and credit memos through a Web-based entry system called MyInvoice. This system does not require Banner access, or a Banner login-token; users need only a campus computing (i.e., Kerberos) account. Alternatively, departments with a large number of invoices may feed them to Banner; please refer to the section on feeding below. The Student Accounting Office prepares the first billing statement and handles the collection process.

The following must be billed through Banner:

  • student fees
  • Sodexo
  • Invoices containing personal health information (i.e., covered by the Health Insurance Portability and Accountability Act, or HIPAA)

The following may be billed through Banner:

  • miscellaneous (sundry) debtors
  • employees, former students, the public and government agencies

Banner billing services fall under the terms and conditions of the campus Receivables Management Rate and are fee based services. The fees include a “per invoice" charge of $.48 for the full rate and $.29 for the subsidized rate plus a rebilling factor. For more information regarding the fee, contact kfs-ar@ucdavis.edu. If your department is interested in using Banner to handle its Accounts Receivable activity, complete the Receivable Management Rate request form so that Accounting & Financial Services can determine the rate to charge your department for this service.

KFS – The KFS AR module is a decentralized, self-service system that puts the department in control of all aspects of the accounts receivable process, which include establishing customers, invoicing, and writing off bad debts. This system also offers receivables management reports. Like Banner, departments with a large number of invoices may feed their invoices to KFS in a file instead of entering them using the KFS Customer Invoice document; please refer to the section on feeding below.

Departmental AR Systems – Under certain conditions and approvals, departments (e.g., University Extension and the Vet Med Teaching Hospital) are permitted to use their own AR systems, which feed the KFS General Ledger directly. If you are interested in this type of service, please. fill out the KFS integration request form.

Departmental Feeds to Banner or KFS – It is possible to feed files of invoices from a departmental AR or customer relationship management (CRM) system to Banner or KFS. Credit memos may only be fed to Banner; KFS does not support the feeding of credit memos. For assistance with Banner feeds contact the Banner Help Desk (530-754-2500 or Banner-Help-Desk@ucdavis.edu). For assistance with new KFS please fill out the KFS integration request form.

Most departments use Banner or KFS for their accounts receivable. The main differences between the two systems pertain to who does the work and who controls the process. With Banner, the process is shared between your department and Student Accounting. With KFS, the department performs most of the process. See the following chart for a comparison.

  Banner KFS
Ensures policy compliance Your department and Student Accounting Your department
Invoices customers Your department Your department
Prints monthly customer billing statements Student Accounting Your department
Handles collection efforts Student Accounting

Your department and Accounting & Financial Services (A&FS)

Has access to collection tools (Experian, skip tracing databases, etc.) Yes Maybe
Has contracts with professional collection agencies Yes Yes, through Student Accounting
Pays professional collection and litigation fees Your department Your department
Has access to withhold student transcripts and diplomas Yes No
Has access to the California Tax Intercept Program * Yes No
Fee to use 29 to 48 cents per invoice plus a rebilling factor ** None

* Student Accounting has the ability to intercept the California State Tax Refund and/or California Lottery winnings of people with bad debt at UC Davis. For details, see California Tax Intercept Program.

** For more details regarding this service contact kfs-ar@ucdavis.edu .

AR Set-Up and Invoicing in KFS and Banner

Refer to the KFS AR Document Help page or Banner AR Invoicing Help page.  For KFS AR, each of the Maintenance documents will need to be completed for your organization before customer invoicing can begin and the Transaction documents can be used.

Money Received in Advance (Prepayments, Retainers)

When money is received in advance of the service being performed, it must be deposited in a Prepaid/Deferred Account.  It should not be recognized as revenue until the services have been performed or the goods sent.  The process for KFS is as follows:

  • If your organization does not have a prepaid balance sheet account set up, contact General Accounting (Jim Seibert at joseibert@ucdavis.edu  or Alyse DeFazio at acdefazio@ucdavis.edu) and ask to have the account set up.  Please include the organization, the fiscal officer for the account and the appropriate fund (should be the same as your income account) in your request.
  • Once the account has been set up, deposit the check, wire or other form of payment into this account using Object 0800.  You can use projects or sub-accounts to track the payments by customer. 
  • When invoices to cover at least a portion of the prepayment have been prepared, initiate a Distribution of Income and Expense document and move the entire prepayment to the AR Clearing account:
    • From: Organization Prepaid Account (Object 0800)
    • To: 3-1193945 KFS A/R Referred to Central Office (Object 0920)
    • Use the document number of the original cash receipt for the document reference number
  • Contact the Central Cashier, Sylvia Montgomery (smontgomery@ucdavis.edu) who will move the amount from the KFS A/R Referred to Central Office account to the invoice and to the unapplied receipts account for the organization. 
  • As invoices are generated, initiate an Application Adjustment (APPA) document to move the funds from the unapplied account to cover the invoice.
  • Reconcile the Prepaid account monthly to ensure that all prepayments are eventually applied to invoices.

Working with Customers

Some best practices involving customers are:

  • Inform the customer of pay terms. Explain to customers that their payment is due upon receipt of invoice and is considered overdue after 30 days.
  • Stay in communication with customers who have a history of paying late. The longer the interval between the invoice date and now, the less likely it is that the university will be paid.
  • Keep notes in the customer record. For example, is phone contact or e-mail contact more effective for this customer? Also, document discussions you've had with the customer (e.g., customer promised to pay by this date: xx/xx/xxxx).
  • Keep in mind what type of customer you're dealing with. The billing statement and dunning notice intervals are different for government versus non-government customers; for more information, see collections.
  • Streamline the process by creating a mail merge where the customer name, number, and address are automatically inserted into the notification.
  • Create e-mail templates that only require you to update the invoice numbers and amounts.

Billing Statements

A billing statement is a notification sent to a customer who has been invoiced but has not yet paid. It summarizes their balance, and requests payment. Statements should be mailed a few days after the invoice is mailed, before the end of the first billing cycle (see the schedule below in the Collections section). If payment is not received by the end of the second billing cycle, send a 2nd billing statement, which is the first step of the Collections process.

For Banner, Student Accounting mails the statements to the customers on or about the 22nd calendar day of the month; payments are due by the 10th of the following month.

For KFS, the department decides when to mail billing statements, provided the initial billing statement is sent before the first billing cycle ends (i.e., 30 days past the invoice date for non-government customers and 60 days for government customers). In KFS, you can generate Billing Statements from the Main Menu, Accounts Receivable section, in the Reports section.  As a "best practice," we recommend that you send all billing statements on the same day each month, and shortly after you send the invoices. For example, if you send invoices on the 20th, send the billing statements on the 25th.

Payments

The Cashier's Office deposits customer payments upon receipt. This creates a KFS feed transaction, reflected as a KFS Application document. If an applied payment results in a credit balance on the customer's account, create a KFS Application Adjustment document to manage the overpayment.

Note: If you invoice a customer via KFS and the customer remits a payment directly to your department, do not process a KFS Cash Receipt (CR) document because it will cause discrepancies between the General Ledger and the Accounts Receivable subsidiary ledgers. Instead, send the payment to the Cashier's Office and let them know what it's for.

Customers can also pay via wire transfer. If they prefer this method, advise them to include the invoice number so that the funds get applied correctly.

When the Cashier's Office processes an AR payment, an e-mail is sent to the KFS fiscal officer.

Banner users can look on MyInvoice, which shows the outstanding balance of invoices. Once paid, an invoice’s outstanding balance will drop to $0.  KFS users can use the Customer History Summary from the KFS Main Menu to view history on payments that have been applied (paid).

Each KFS Application document transaction reflects a credit (decrease) to the receivable account, with receivable object code. However, the other side of the transaction (debit, or increase) to a clearing account, is not visible in departmental ledgers.

When a Banner invoice is posted, you will see the credit side of the entry only in your ledger. The following ledger entries occur for a transaction where lab services in the amount of $120.00 are billed by a department to one of its customers. The departmental account used to record the activity is 4433221:

**** 112xxxx – 0299 (Accounts Receivable)     $120.00 (debit)
         4433221 – 0060 (Income)                         $120.00 (credit)

**** This side of the entry is made to a balance sheet account managed by the Student Accounting Office and cannot be viewed at the departmental level except by running a Banner aging report, TGRAGES. This report may be scheduled to run on a regular basis, or run on-request by Student Accounting staff.

For KFS AR, you can set up your billing structure so that the same account is used to record both the receivable and the income, as in the example below. The following KFS ledger entries occur for a transaction where lab services in the amount of $120.00 are billed by a department to one of its customers.

         7665544 – 0299 (Accounts Receivable)     $120.00 (debit)
         7665544 – 0060 (Income)                         $120.00 (credit)

Collections

Collections is the process of seeking payment for goods or services received but not paid for. After a customer is sent an invoice and the first billing statement, they have until the next billing cycle to pay the balance. If they don't pay the balance, non-government customers enter the collection process.

Throughout the collection process, it is important that you follow up promptly because the probability of collecting on debts typically declines as time elapses. Until you receive an e-mail from the Cashier's Office stating you have received payment, stay in communication with the customer (see Collection Strategies page). As the customer moves through the collection process, it's important that you add notes in order to establish a detailed audit trail. Note: If a customer declares bankruptcy, cease all collection efforts.

A Dunning Notice is a payment demand sent to a customer in regard to their delinquent account. If there's still no payment after the first dunning notice, a second (more strongly worded) dunning notice is sent, followed by a third if necessary (Note: UCD student customers don't receive a third dunning notice). 

For Banner, Student Accounting mails dunning notices to customers.  For KFS, your department generates dunning notices.

After Dunning Notices are sent, for Banner, Student Accounting will request that holds be placed on registrations for current students. For other Banner AR customers, Student Accounting (often in collaboration with the department) will determine whether to write off the balance or involve a collection agency. In making this determination, consider cost effectiveness.  For KFS, the department decides whether to refer the customer to a collection agency or to write off the balance. In making this decision, consider cost effectiveness.

A non-government customer is referred to an outside collection agency if a customer's account is delinquent after prior collection attempts have failed (see the schedule below), and provided the cost of using the collection agency does not exceed the anticipated recovery amount; government customers are not referred to a collection agency. If using a collection agency is deemed not cost effective, use the write-off process.

For Banner, Student Accounting will contact you to discuss whether referring a customer to an agency is appropriate. If appropriate, Student Accounting will work with the agency, on your behalf.

For KFS, the department decides whether it wants to refer the customer to a collection agency or write off the unpaid amount as a bad debt. For referral to a collection agency, contact Student Accounting.

Below is a timeframe for the Collections process.

Action When to issue to non-government customers When to issue to government customers
Issue 2nd billing statement (2nd notice) 30 days past the invoice date 120 days past the invoice date
Issue dunning notice (3rd notice) 60 days past the invoice date N/A
Issue 2nd dunning notice (4th notice) 90 days past the invoice date 180 days past the invoice date
Issue final dunning notice (5th notice) 120 days past the invoice date 210 days past the invoice date
Refer to collection agency 150 days past the invoice date N/A

When a customer is referred to a collection agency, the collection agency will immediately begin their recovery efforts. Student Accounting will work with you each step of the way to get your feedback on how aggressive you want the collection agency to act on your accounts. If you authorize litigation against the customer, for example, Student Accounting will help you understand the costs of that action, including attorney fees, possible witness fees, and travel for out-of-state cases.

In KFS, you will see any payments reduce your receivable balance; because Banner departments already received their revenue up-front, they will see the collection agency’s commissions post to their FIS account as an expense.

If the collection agency is unsuccessful in recovering the debt, Student Accounting will ask the department if it would like to try a different collection agency. If so, then Student Accounting contacts a second agency. If not, the debt is written off.

See the Collection Strategies page for suggestions on how to best collect past payments and information on working with a Collection Agency.

Writeoffs

A write-off is the classification of unrecovered revenue as a bad debt, and removes the balance from the customer's account and the general ledger.

Write-offs are done to remove balances for which collection efforts have not been successful, or to adjust the remaining balance for an invoice the customer paid short. In KFS, different route rules apply to writeoff documents with a value less than $50.

For Banner, after discussion with the department, Student Accounting performs the necessary steps to clear the customer's balance and report the transaction as a bad debt. At this point, Student Accounting can help the department decide if the Franchise Tax Board’s California Tax Intercept Program is a reasonable approach to take on the amount written off.

For KFS, departments can use the Customer Invoice Writeoff or Customer Invoice Writeoff Global document (available from the KFS Main Menu) to write off invoices that do not have credit balances.  If the Customer Invoice Writeoff exceeds $50, it will route to Accounting & Financial Services (A&FS) for approval.

In KFS, use the Customer Invoice Writeoffs, available in the Lookups section of the Accounts Receivable section of the KFS Main Menu.

After a Writeoff is processed, no further action is required by you or your department. If a customer pays an invoice that was written off, Student Accounting will credit the department's account.

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