Accounts Receivable Only

Standard Operating Procedure: Accounts Receivable Only (AR-SOP-014)

1. Document Control & Revision History

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2. Executive Summary & Scope

2.1 Operational Boundaries

This Standard Operating Procedure (SOP) defines the mandatory lifecycle for the isolated management of Accounts Receivable (AR) operations. The operational boundaries strictly encompass cash application, invoice aging analysis, direct customer collections, dispute intake, and unapplied cash clearing.

This procedure explicitly excludes order-to-cash up-stream functions, specifically credit risk underwriting, sales order generation, and Master Data Management (MDM) customer record creation. AR personnel are restricted from modifying customer credit limits or approving unbilled revenue accruals.

2.2 Regulatory Standards & Compliance

All workflows executed under this SOP must maintain absolute compliance with:

• GAAP (Generally Accepted Principles): Topic 606 (Revenue Recognition) and ASC 326 (Financial Instruments—Credit Losses / CECL framework).
• SOX (Sarbanes-Oxley Act of 2002): Section 404 internal controls over financial reporting, specifically segregation of duties (SoD) between cash application and general ledger journal entry posting.
• Regulatory Frameworks: Fair Debt Collection Practices Act (FDCPA), General Data Protection Regulation (GDPR), and Payment Card Industry Data Security Standard (PCI-DSS) for secure payment ingestion.

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3. Prerequisites & Tool Requirements

3.1 Software Access & Authorization

• Enterprise Resource Planning (ERP): SAP S/4HANA or Oracle Cloud ERP with restricted AR module access (Role: FIN_AR_SPECIALIST).
• Treasury Management System (TMS) / Lockbox: Access to bank lockbox feed portals (J.P. Morgan Access, Wells Fargo CEO, or equivalent institutional banking gateway).
• Customer Relationship Management (CRM): Salesforce Financial Services Cloud or Microsoft Dynamics 365 for collection activity logging and dispute tracking.
• Communication & Security: Multi-Factor Authentication (MFA) tokens, encrypted email gateway (TLS 1.3), and Virtual Private Network (VPN) connectivity.

3.2 Certifications & Training

• Personnel executing this SOP must hold active internal certifications in SOX Financial Controls Compliance, PCI-DSS Awareness, and ERP AR Module Operational Proficiency.

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4. Roles & Responsibilities (RACI Matrix Table)

• R - Responsible (The role that performs the activity)
• A - Accountable (The role with final approval and ownership)
• C - Consulted (The role providing advisory input)
• I - Informed (The role kept updated on progress/outcomes)

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5. Step-by-Step Operational Procedure

Phase 1: Daily Cash Application & Ingestion

• 1.1 Access the institutional bank lockbox and electronic payment portals (ACH, Wire, EFT) daily by 08:30 EST.
• 1.2 Extract the daily remittance files (BAI2 or CSV formats) and import them into the ERP AR cash application module.
• 1.3 Match incoming remittances against open open-item customer invoices using Automated Cash Application matching rules (Match criteria: Exact invoice number, exact amount, or valid PO number).
• 1.4 Flag unmatched or partial payments as "Unapplied Cash" and route them to the suspense clearing account (GL-1040-SUSP).
• 1.5 Ensure cash application batch totals reconcile perfectly with bank deposit statements before posting.
• 1.6 Post and close the daily cash batch by 14:00 EST to initiate subledger-to-general ledger synchronization.

Phase 2: Aging Analysis & Dunning Workflow

• 2.1 Run the weekly AR Aging Report (R.46 or equivalent ERP query) on Monday at 06:00 EST.
• 2.2 Segment aging categories into standard buckets: Current, 1–30 Days Past Due, 31–60 Days Past Due, 61–90 Days Past Due, and 90+ Days Past Due.
• 2.3 Execute automated dunning letter level 1 (Friendly Reminder) for accounts reaching 1 to 15 days past due.
• 2.4 Execute automated dunning letter level 2 (Past Due Notice) and initiate direct phone outreach for accounts reaching 31 to 60 days past due.
• 2.5 Issue formal Notice of Default and place a temporary hold on customer credit profiles via the CRM for accounts reaching 61 to 90 days past due.
• 2.6 Escalate accounts exceeding 90 days past due to Legal/Collections agencies in accordance with institutional credit policy thresholds.

Phase 3: Dispute Resolution & Deduction Management

• 3.1 Identify short-payments, unauthorized deductions, or disputed invoices during the cash application process.
• 3.2 Create a formal Dispute Ticket in the ERP/CRM integration layer within 24 hours of short-payment identification.
• 3.3 Classify the dispute into root-cause categories: Pricing Error, Quantity Discrepancy, Damaged Goods, Tax Exemption Issue, or Unauthorized Deduction.
• 3.4 Route the dispute notification to the internal business owner (Sales, Logistics, or Billing Operations) for validation.
• 3.5 Monitor open dispute aging; if a dispute remains unresolved past 30 days, escalate to the AR Supervisor for mandatory executive review.
• 3.6 Post credit memos or re-bill invoices upon receiving formal validation and sign-off from the authorized business owner.

Phase 4: Month-End Subledger Close & Reconciliation

• 4.1 Freeze AR subledger transaction processing on calendar month-end at 17:00 EST.
• 4.2 Generate the official AR Subledger Trial Balance and compare total ending balances against the General Ledger Control Account (GL-1200-AR).
• 4.3 Calculate the Allowance for Doubtful Accounts (AFDA) based on the current CECL matrix and historical loss rates.
• 4.4 Prepare the monthly AR roll-forward schedule (Beginning Balance + Billings - Collections - Write-offs = Ending Balance).
• 4.5 Submit the completed reconciliation package to General Accounting and Internal Audit by Business Day +2.

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6. Quality Assurance & Verification Criteria

6.1 Audit Checklist & Acceptance Benchmarks

• Cash Application Accuracy: $\ge 98.5%$ of daily cash receipts must be matched and posted on the day of receipt. Unapplied cash older than 5 business days must not exceed $0.5%$ of total monthly collections.
• Subledger Integrity: The variance between the AR Subledger and the General Ledger Control Account must be exactly $0.00 at month-end close. Any variance requires an immediate stop-work and audit trace.
• Dunning Compliance: 100% of overdue accounts must receive scheduled dunning notices according to aging brackets without unauthorized manual suppression.
• Dispute Resolution Velocity: The average Days Sales Outstanding (DSO) impact from unresolved disputes must not exceed 4.2 days.

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7. Practical Troubleshooting Scenarios

Scenario A: Unidentified Remittance / Cash Mismatch

• Symptom: A wire transfer of $150,000.00 is received in the bank account, but no matching invoice, customer identifier, or remittance advice accompanies the transaction.
• Immediate Corrective Action Protocol:
  1. Post the funds immediately to the Unapplied Cash Suspense Account (GL-1040-SUSP) to ensure general ledger cash accuracy.
  2. Issue a formal inquiry via the Treasury portal to the originating banking institution requesting a trace or complete remittance detail from the sender's bank.
  3. Cross-reference open orders and billing forecasts in the ERP for an exact dollar match ($150,000.00) across all business units.
  4. If unresolved after 48 hours, notify the Sales Account Executive assigned to the prospective client base to assist with customer identification.

Scenario B: Systemic Bank Integration Feed Failure

• Symptom: The automated bank lockbox data feed fails to ingest into the ERP due to a secure API handshake timeout or schema formatting error.
• Immediate Corrective Action Protocol:
  1. Halt automated cash posting routines to prevent duplicate posting risks.
  2. Notify the Enterprise IT Support Desk and Treasury Operations via high-priority ticket generation.
  3. Manually download the secure BAI2 statement file directly from the bank portal and save it to the encrypted, access-controlled local directory.
  4. Perform a manual flat-file import under the direct supervision of the AR Supervisor, verifying checksum totals match bank statement control figures prior to final batch commit.