This article is relevant for those looking to develop effective invoice and cash receipt controls in their NetSuite-driven accounting operations.

Background

In NetSuite, customer invoices are the basic (not exclusive) financial transactions that recognize revenue. An invoice also serves as a mechanism to request payment from customers. All going concern businesses have established patterns for generating revenue and requesting payments. Collecting these payments generally falls under the Accounts Receivable (AR) function. Most organizations aim to streamline their AR operations to help minimize administrative costs and ensure customers adhere to payment terms.

As transaction volumes increase, managing the AR function becomes more challenging. As organizations mature, their accounting leadership develops functions and controls to effectively manage this operation.

One may ask, “What does it take to implement effective controls around Accounts Receivable?”

The Accounts Receivable Function: Invoices and Cash Receipts

The Accounts Receivable topic can become elaborate as we delve into revenue recognition and advanced funds functions. However, it’s easier to build controls when we start with the fundamentals to establish best practices. There are two major functions in Accounts Receivable:

1. Invoices: The process of requesting funds from customers (which likely addresses revenue recognition)
2. Cash Receipts: The process of recording cash/monies due from customers.

NetSuite Driven Invoice Best Practices

The general best practice for invoices is to ensure revenue is recognized as earned. For many NetSuite companies, this means recognizing revenue when goods are shipped or services rendered. My 2019 article, Best Practices for Automating NetSuite Invoice Generation, offers detailed guidance on this topic. Our firm generally advises clients to align invoices with their item fulfillment records.  The idea is to shape the invoice to help facilitate their customers’ accounts payable functions. The accounts payable functions typically involve three-way matching: purchase order, item receipt, and vendor bill.  By shaping transaction records that make three-way matching easier, we help streamline the internal accounts payable approval processes to ensure a faster payment cycle — an implicit goal in Accounts Receivable.

For customers who work with deposits, the process for requesting those upfront funds is not straightforward in NetSuite.  However, since 2016, our firm has developed recognized leadership on this topic.  The key is to craft an invoice for funds, which then properly produces the accounting and automatically creates customer deposit records when the funds finally arrive.  My 2016 article, Solved: NetSuite Customer Deposits and Advance Payment Accounting, along with a slew of other related customer deposit-related articles, drive home the power of NetSuite-driven customer deposit accounting.

The key is to build a consistent, recurrent, and easy-to-understand practice. While this topic can become complex due to specific concerns, in all cases, we should start with fundamentals and layer in complexity, carefully contemplating whether the way we are modeling the challenge is effective.

Cash Receipt Best Practices

Receiving cash can become complex, so starting with the fundamentals is essential for designing robust internal control practices.  Our invoicing work will significantly influence our cash receipt processes.  So we always first contemplate that first because it initiates the action.  Depending on the industry, the standards and practices will vary.  For many NetSuite customers, cash receipts are a function of invoicing.   However, in many financial industries, cash receipts are based on the balance due concept: invoices are not paid specifically; instead, a balance is presented and expected to be paid.  We won’t spend time on the balance model here — but it is a completely different mindset for cash applications.

Here, we will examine a simple case reflecting our firm’s internal practices. This basic model helps us understand more complex models. The fundamental invoice-based accounts receivable pattern is as follows:

1. Invoice Weekly: Our professional staff submits weekly timesheets, which serve as the basis for services rendered. We generate client invoices immediately to reflect earned revenue and request funds per agreed payment terms.
2. Payment Patterns: With weekly invoices, we expect our clients’ accounts payable functions to record their obligations promptly.  We anticipate a regular pattern of cash disbursements, expecting our invoices to be paid in full.  The payment pattern should align with how we craft and distribute our invoices.  Given our straightforward invoicing model, we thus believe the payment model is equally simple.

Because of this simple model, we can establish strong controls and operations in this domain with a little effort.   Let’s review some of the controls we’ve implemented, highlighting the power of the NetSuite platform in supporting our operational practices.  The hope is that it provides inspiration for you as you design your practices.

Reflection on NetSuite-Driven Cash Receipt Practices

With our simple invoice and payment patterns, we’ve implemented several key controls:

1. Detect Partially Paid Invoices: We do not expect partially paid invoices. If such transactions occur, it signals an issue.   It could be a bookkeeping error or a client concern with a line item.  Any partially paid invoice requires attention.
2. Detect Unapplied Payments: Funds received from customers should correspond to requested funds via invoices.  All monies then should be accountable to respected invoices.  Unapplied payments indicate an issue that needs review and follow-up.
3. Payments Out of Sequence: In a weekly invoice operation, transactions are dated and easily ordered.  It is easy to assume then that payments should follow the sequence of issued invoices. An out-of-sequence payment suggests a potential problem.  Did our customer miss the invoice distribution?  Do they have an issue with an invoice that we don’t know about?  As discussed in my 2022 article, Early Warning NetSuite Past Due Invoice Notifications, an out-of-sequence payment could be an early indicator of a customer becoming late. Addressing this as soon as it is detected can help us stay on top of our receivables efforts.
4. General Reporting: Classic reporting controls, such as accounts receivable aging with its categorical overdue buckets, help monitor customer payment status.   Another critical control is discussed in my 2020 article, Calculate NetSuite Days Sales Outstanding (DSO) with Saved Search, which aids in tracking overdue payments effectively.
5. Bank Reconciliations: Regular NetSuite bank reconciliations ensure all received cash is accounted for and deposited into a financial institution.  This control aligns our books with bank records.  I’ve written extensively on this topic.

Our firm also uses retainers to drive professional service delivery. Combining normal invoice operations with customer deposit operations creates a more complex cash receipt process.  We implemented our Advance Customer Deposit Generator, ensuring all inbound monies are associated with an invoice, streamlining our cash-receipt bookkeeping operations.  With an invoice-only process, our bookkeepers have fewer decisions to make as funds arrive.

Unapplied Payments and Partially Paid Invoice Detection

To help Accounting Controllers design better operations, below are some patterns we use to detect concerns that need addressing. Each uses saved search technology, making them accessible to be crafted for most NetSuite users. We utilize these in two ways:

1. Daily Alerts: Key management team members receive alerts about transactions and situations that do not meet our controls.  Follow-up conversations with staff drive resolutions.  Ideally, these searches should return no results, indicating that controls are effectively in place.
2. Menu System: We organize these lookups by creating a special NetSuite menu system, enabling team members to quickly find all control-related searches.   Each department function has its own control menu, making it easy to launch and build upon—ensuring staff are not lost looking for department-sanctioned control saved searches.

By implementing these saved searches, we ensure that potential issues are identified promptly and addressed efficiently. This practice not only maintains control but also streamlines operations within the accounting department.  Click related images to see full-screen the crafting of these searches.

Designing Streamlined Accounting and Bookkeeping Operations

This discussion is the starting point for Controllers aiming to design reliable and cost-effective bookkeeping operations. Every business has its own peculiarities, and a major advantage of the NetSuite platform is its flexibility to tailor operations. While common sense suggests automating everything, we generally suggest our clients build trustworthy practices by building a robust control structure.  This involves implementing both preventative and detective controls to maintain focus on areas that need attention.

The NetSuite platform excels in facilitating these preventative and detective controls.   However, it takes a particular quality to understand a business and its accounting operations to design effective controls.   Our team is adept at this craft.  Besides greater satisfaction, organizations that invest in their operations and controls will see a higher return on their NetSuite investment.

Internal Control Development Categories:

1. Preventative Controls: Build controls upfront to prevent errors and issues before they occur.   I urge you to consider a scalable design pattern our firm developed in this article.
2. Detective Controls: Implement controls to detect and address issues that arise, ensuring attention is placed where needed.  The examples above reflect detective controls.

These NetSuite drive controls are not necessarily out of the box.  They need to be crafted and then practices must be developed to bring forth their desired function.

NetSuite Accounting and Systems Leadership

We offer highly competent professionals who can conceive, design, craft, and assess NetSuite-drive controls that make the business more scalable.  Our LABs initiative allows our clients access to all of our intellectual property without a license charge.  In our minds, the difference in software utilization and outcomes all depend on the quality of the leadership that drives its shape.  Thus, the key is for a competent actor to listen to understand goals well and then to design actionable plans that can be realized.

If you found this article relevant, feel free to sign up for notifications to new articles as I post them. If you would like to work with our team on designing your accounts receivable controls, let’s have a conversation.

Marty Zigman

Holding all three official certifications, Marty is regarded as the top NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 30 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to set up a conversation.

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