Receivables Application Rule Sets

Application Rule Sets determine the steps Receivables uses to apply partial payments and credit memos to your customer's open debit items, and how discounts affect the open balance for each type of associated charges.

Transactions usually consist of line items, tax, freight, and late charges, or a combination of these. Depending on your business needs, you can reduce each associated charge proportionately, close the outstanding tax amount first, or apply a payment to the line and tax amounts and use any remaining portion to reduce the freight and late charges.

Application Rule Sets let you specify how Receivables reduces the balance of your open debit items when you:

You can assign a rule set to each of your transaction types and enter a default rule set in the System Options window. Receivables uses the following hierarchy to determine which application rule set to use, stopping when one is found:

  1. Transaction Type

  2. System Options

Application Rule Sets

Receivables provides the following predefined Application Rule Sets. You can view these rule sets and create your own rule sets in the Application Rule Sets window.

For a detailed explanation of each of these rule sets, see: Application Rule Set Example.

Line First - Tax After

This rule set first applies the payment to the open line amount, and then applies the remaining amount to the associated tax. If the payment is greater than the sum of the line and tax, Receivables attempts to close each open item by applying the remaining amount in the following order, stopping when the payment has been fully applied:

  1. Freight

  2. Late charges

Any remaining receipt amount is applied using the Overapplication Rule. This is the default application rule set in the System Options window. See: Overapplication Rule.

Line and Tax Prorate

This rule set applies a proportionate amount of the payment to the open line and tax amount for each line. If the payment is greater than the sum of the open line and tax amounts, Receivables attempts to close each open item by applying the remaining amount in the following order, stopping when the payment has been fully applied:

  1. Freight

  2. Late charges

Any remaining receipt amount is applied using the Overapplication Rule. See: Overapplication Rule.

Prorate All

This rule set applies a proportionate amount of the payment to each open amount associated with a debit item (for example, any line, tax, freight, and late charge amounts for this item).

Receivables uses the following formula to determine the applied amount:

Applied Amount = open application line type amount / sum of application line types in rule details * Receipt Amount

Any remaining receipt amount is applied using the Overapplication Rule. See: Overapplication Rule.

Overapplication Rule

Each application rule set includes an Overapplication Rule by default. This rule applies any remaining receipt amount after the balance due for all charges has been reduced to zero. If the transaction type for the debit item has the Allow Overapplication check box set to Yes, Receivables applies the remaining amount to the lines, making the balance due negative. If the item's transaction type has Allow Overapplication set to No, you can either place the remaining amount on-account or leave it 'Unapplied'.

When using AutoLockbox, Receivables uses your AutoCash Rule Set to determine how to apply the remaining amount. See: AutoCash.

Application Rule Sets Example

This example shows how Receivables applies a payment using each predefined application rule set.

You have the following invoice:

Invoice #123

Your customer remits a partial payment of $1040 for this invoice. The table below shows how Receivables applies the payment using each of the three predefined application rule sets.

See: Calculations for Applying Payments Using Application Rules.

Application Rule Set Total Amount Applied Line Amount Applied Tax Amount Applied Freight Amount Applied
Line First - Tax After 1040 1000 40 0
Line and Tax Prorate 1040 912.281 127.722 0
Prorate All 1040 776.123 108.664 155.225

Calculations for Applying Payments Using Application Rules:

Line First - Tax After

First apply payment to open line amount; apply any remaining amount to tax.

Line and Tax Prorate

1(1040/1140) * 1000 = 912.28

(Receipt Amount / Total Line and Tax) * Line Amount = Line Amount Applied

2(1040/1140) * 140 = 127.72

(Receipt Amount / Total Line and Tax) * Open Tax Amount = Tax Amount Applied

Prorate All

3(1040/1340) x 1000 = 776.12

(Receipt Amount / Invoice Total) x Open Line Amount = Line Amount Applied

4(1040/1340) x 140 = 108.66

(Receipt Amount / Invoice Total) x Open Tax Amount = Tax Amount Applied

5(1040/1340) x 200 = 155.22

(Receipt Amount / Invoice Total) x Open Freight Amount = Freight Amount Applied

Line First - Tax After

As shown in the example above, this rule set first applies the payment to the line amount, reducing the balance due to zero. Receivables then applies the remaining amount ($40) to the tax charges, reducing the open tax amount to $100. Since the payment is not enough to close these items, the freight balance is not affected.

The table below compares each line type before and after you apply an amount using this rule.

App. Rule Set Amount Due Original Amount Due Remaining Line Items Original Line Items Remaining Tax Original Tax Remaining Freight Original Freight Remaining
Line First - Tax After 1340 300 1000 0 140 100 200 200

Line and Tax Prorate

This rule set applies a proportionate amount to the open line and tax charges. Since the amount applied is not enough to close these items, the freight balance is not affected.

The table below compares each line type before and after you apply an amount using this rule.

See: Calculations for Applying Payments Using the Line and Tax Prorate Application Rule.

App. Rule Set Amount Due Original Amount Due Remaining Line Items Original Line Items Remaining Tax Original Tax Remaining Freight Original Freight Remaining
Line and Tax Prorate 1340 300 1000 87.721 140 12.282 200 200

Calculations for Applying Payments Using the Line and Tax Prorate Application Rule:

11000 - 912.28 = 87.72

Amount Line Items - Line Amount Applied = Open Line Amount

2140 - 127.72 = 12.28

Tax Original - Tax Amount Applied = Open Tax Amount

Prorate All

This rule applies a proportionate amount of the receipt to the line, tax, and freight for this transaction. To see the formula Receivables uses to calculate the amount applied for each line type, refer to Prorate All.

The table below compares each line type before and after you apply an amount using this rule.

App. Rule Set Amount Due Original Amount Due Remaining Line Items Original Line Items Remaining Tax Original Tax Remaining Freight Original Freight Remaining
Prorate All 1340 300 1000 223.38 140 31.34 200 44.78

Transactions with Mixed Sign Balances

An additional consideration is the situation in which you apply a payment to a transaction that has mixed sign balances. 'Mixed sign balances' indicates that not all of the charges that make up a transaction have the same sign (positive or negative). In this case, the procedure Receivables uses to apply a payment is different than when applying to transaction amounts that are all positive or all negative (i.e. "same sign" balance).

When you apply a payment to a transaction that has mixed sign balances, Receivables applies the payment only to those amounts that have the same sign as the payment. For example, if the payment is for a positive amount (i.e. not a credit memo), Receivables only reduces the charges that have a positive balance; any negative balances are not affected.

As with transactions having a same sign balance, Receivables will apply any remaining amounts according to the overapplication rule assigned to your Application Rule Set.

Consider the following example:

Invoice #101

Assume that you are using the Application Rule 'Prorate All.' Your customer remits a receipt of $100, and you apply this amount to invoice 101. Receivables prorates the amount among the tax, freight, and charges, because, like the receipt, these amounts are positive. The Line amount (-100) is not affected.

The new invoice balance is shown below:

Invoice #101

The table below compares each line type for this invoice before and after you apply the payment.

App. Rule Set Line Items Original Line Items Remaining Tax Original Tax Remaining Freight Original Freight Remaining Charges Original Charges Remaining
Prorate All <100> <100> 100 28.56 30 8.58 10.00 2.86

The amount applied to each line type and the calculations Receivables performs are shown in the table below.

See: Calculations for Applying Payments Using the Prorate All Application Rule.

Total Amount Applied Line Amount Applied Tax Amount Applied Freight Amount Applied Charges Amount Applied
100 0 71.441 21.422 7.143

Calculations for Applying Payments Using the Prorate All Application Rule:

1100 - (21.42 + 7.14) = 71.44

2(30 * 100) / 140 = 21.42

3(10.00 * 100) / 140 = 7.14

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