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Receivables Application Rule Sets

Application Rule Sets determine the steps Receivables uses to apply payments 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 finance 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 finance 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:

Note: Receivables Application Rule Sets always apply payments and discounts to the gross line amount (the net line amount plus any associated tax amount). For more information, see: Tax Inclusive.

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:

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

Line First - 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:

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 finance 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      
Line $1000    
Tax $140    
Freight
Total: 		$200
$1340 		   

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.

Application Rule Set Total Amount Applied Line Amt. Applied Tax Amt. Applied Freight Amt. Applied
Line First - Tax After 1040 1000 40 0
Line First - Tax Prorate 1040 912.28 1 127.72 2 0
Prorate All 1040 776.123 108.664 155.225
Table 1 - 21. (Page 1 of 1) Applying Payments Using Application Rules

Calculations:

Line First - Tax After

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

Line First - 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.

Application Rule Set Amt. Due Original Amt. 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 First - 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.

Application Rule Set Amt. Due Original Amt. Due Remaining Line Items Original Line Items Remaining Tax Original Tax Remaining Freight Original Freight Remaining
Line First - Tax Prorate 1340 300 1000 87.72 1 140 12.28 2 200 200

Calculations

1 1000 - 912.28 = 87.72

Amount Line Items - Line Amount Applied = Open Line Amount

2 140 - 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.

Application Rule Set Amt. Due Original Amt. 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

See Also

Application Rule Sets

Defining Receivables System Options

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