About automatic payment application

You can use automatic application of a payment document in the following cases:

• You work with a customer who purchases very frequently; therefore, there are a lot of invoices and payments involved. For this customer, you can turn on automatic application of new payments to outstanding documents associated with the customer account.
• You want to apply all open payment documents recorded in the system to outstanding documents at some particular time, such as before preparing customer statements. You use the Apply payments automatically (AR506000) mass processing window for this purpose.
• It is common in your company to receive payments in advance and you want to apply open payment documents when you record the related invoice. For details on applying payments when recording invoices, see About invoice recording.

Suppose that your company has customers who purchase frequently and you want to save time on the application of their payment documents with the Payment type to outstanding documents. For such customers, you select the Apply payments automatically check box on the Financial settings tab of the Customers (AR303000) window.

When you release a new payment (with the Balanced status) of one of these customers in the Customer payments (AR302000) window, the system automatically applies the payment to any outstanding documents of this customer.

The system forms the list of outstanding documents and distributes the payment amount as follows:

1. If the customer account has open documents of the Credit note type, the system adds them at the top of the list. The balances of the open credit notes increase the balance that can be applied to outstanding documents.
2. If the Apply payments to overdue charges first check box is selected in the Customer ledger preferences (AR101000) window and the customer account has open documents of the Overdue charge type, the system distributes the available payment balance among these documents. If the available payment balance, including the balances of any open credit notes, has not been fully applied, the system searches for outstanding documents of other types.
3. If the customer account has outstanding documents, the system applies the available payment balance to the first document in the list. If the available payment balance, including the balances of any open credit notes, has not been fully applied, the system applies the rest of the balance to the next document in the list and continues this process until the available payment balance is fully applied.

The system creates application records for each paid outstanding document and releases the application records simultaneously with the payment.

Before you prepare statements for your customers, we recommend that you apply open payment documents from customers to any corresponding invoices and calculate any overdue charges, to avoid incorrect calculation of aged balances. For a statement cycle, if the Require payment application before statement check box is selected in the Statement cycles (AR202800) window, the system will issue a warning if you try to process statements while there are open payments of customers involved in the statement cycle.

If there are open payment documents and credit notes, you can go through these documents one by one and apply them to the outstanding documents manually, as described in About manual payment application, or you can use the Apply payments automatically (AR506000) mass processing window.

In this window, you select a statement cycle or multiple statement cycles to specify the group of customers for which the system will run the auto-application process. When you run the process (by clicking Process or Process a ll in the window toolbar), the system does the following for each customer that is assigned to the selected statement cycles:

1. Searches for all open payments and prepayments, and sorts these documents in ascending order by the document date, document type, and reference number. If you have selected the Apply credit notes check box in the window, the system includes open credit notes in the list of payment documents.
2. Searches for all open debit notes, invoices, and overdue charges, and sorts these documents in ascending order by due date. If the Apply payments to overdue charges first check box is selected in the Customer ledger preferences (AR101000) window, the system moves any overdue charges to the top of the list.
3. Applies any found credit notes (if included) and payment documents to the outstanding documents one by one by creating the corresponding application records, starting with the first credit note or payment document and the first outstanding document.
4. If you have selected the Release batch when finished check box in the window, releases application records and closes documents whose balance becomes 0. If you have not selected this check box, you need to release application records manually for each payment document in the Customer payments (AR302000) window or by using the Release customer documents (AR501000) mass processing window. For details, see About release of payments and prepayments.
   If the Automatically post on release option is selected in the Customer ledger preferences (AR101000) window, the system also posts the released batches.

After the process is complete, for each payment document, you can view the list of applications that have been saved but not yet released on the Documents to apply tab of the Customer payments (AR302000) window. You can track the history of released payment applications by using the Application history tab of the window. For step-by-step instructions, see View invoices paid with a specific payment document.

If the Parent-Child Customer Relationship functionality is enabled in the Enable/disable functionalities (CS100000) window and parent-child relations between customer accounts are configured, you can include the open documents of child accounts in the process of automatic payment application. In the Apply payments automatically (AR506000) mass processing window, in the Include child documents field, you can select the types of open documents of child accounts that should be included in the process of payment application. The system will process first the open documents of the child accounts and then the open documents of the parent account. For details, see Manage parent-child relationships - overview.

The system excludes payments and prepayments from the list of payment documents that can be applied to outstanding documents if they meet at least one of the following criteria:

• The open payment document is linked to a sales order. That is, the payment document has a reservation record or multiple reservation records on the Orders to apply tab of the Customer payments (AR302000) window. For details, see About payment reservation for sales orders.
• The open payment document was put on hold. That is, a user selected the Hold check box for the payment document with the Open status in the Customer payments (AR302000) window, and the system changed the document status from Open to Reserved.
  To release the payment from hold, clear the Hold check box.

Thus, the system ignores these payment documents when you record an invoice and want to perform an application, as well as when you initiate the auto-application process in the Apply payments automatically (AR506000) mass processing window.