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Types of Billing Systems

15 January, 2016 - 09:50

In general, there are two kinds of billing systems. A postbilling system prepares invoices after goods have been shipped and the sales order notification has been matched to shipping’s billing notification. The data flow diagrams in this section and in THE “ORDER-TO-CASH” PROCESS: PART I, MARKETING AND SALES (M/S) assume a postbilling system.

A prebilling system prepares invoices immediately on acceptance of a customer order—that is, after inventory and credit checks have been accomplished. Prebilling systems often occur in situations where there is little or no delay between receipt of the customer’s order and its shipment. For instance, prebilling systems are not uncommon in catalog sales operations such as that of L.L. Bean. In such systems, there is no separate sales order document; copies of the invoice serve as the picking ticket, packing slip, and other functions required by the M/S process.1 In other words, the customer is billed (and the inventory, accounts receivable, and general ledger master data are updated) at the time the customer order is entered. However, the customer copy of the invoice is not released until shipment has been made. For this type of system to operate efficiently, the inventory control system must be very reliable. If an order is accepted and an item then turns out to be unavailable, all financial records have to be adjusted.

Review Question

What is the difference between a postbilling system and a prebilling system?