MALACO CORPORATION – REVENUE PROCESS NARRATIVE
I. Customer Master File Creation
Process Owners: Sales Admin, Credit Management, Master Data Management (MDM),
Compliance
Objective: Establish a valid, complete, and compliant customer record for transaction processing
The revenue process begins with the creation of a customer master file, which serves as the
foundational record for all commercial transactions with that customer. This process ensures that
all customer-related information is accurately captured, standardized, and integrated across the
organization’s ERP system.
The process is initiated when a prospective customer expresses formal interest in purchasing
goods or services. At this point, the Sales or Customer Service team gathers all necessary
onboarding information, which includes the customer’s full legal entity name, business
registration or license, tax identification number (TIN), billing and shipping addresses, email
contacts, and preferred payment terms. This data collection is crucial for ensuring compliance
with legal, tax, and audit requirements.
Once the basic information is submitted, the Credit Management team conducts a financial risk
assessment. This includes reviewing credit application forms, recent financial statements, bank
or trade references, and third-party credit ratings or reports. Based on this analysis, the team
assigns an appropriate credit limit and determines whether additional terms are needed—such as
upfront payments, security deposits, or guarantees—especially for high-risk or new customers.
Following credit approval, the Master Data Management team is responsible for entering the
customer's information into the ERP system. The customer account is set up across multiple
functional modules—including Accounts Receivable, Sales, and Tax—ensuring the customer
can transact smoothly with the organization. A unique customer ID is generated by the system,
which becomes the primary reference point for all future transactions and communications. The
unique customer ID follows a format C plus an 8-digit numerical code (e.g., C12345678).
To maintain integrity and control over the customer database, the setup process is subject to
workflow approvals. At least two levels of validation—typically from the Sales Admin and
Credit or Finance teams—are required before a customer account becomes active. All changes to
the master file (e.g., address updates, tax changes, credit limit revisions) are tracked in the
system’s change log and reviewed regularly to detect unauthorized or outdated modifications.
Controls:
Dual approval workflow: one for credit approval, one for data creation
Change log tracking for any updates to the master file
Quarterly reviews of dormant/inactive customers
Blacklist validation for restricted entities
II. Sales Order Entry
Process Owners: Sales Operations, Customer Service, Order Management
Objective: Accurately record and validate customer orders for fulfillment and billing
Once a customer has been successfully set up in the ERP system, they may begin submitting
orders for products or services. The sales order process is initiated when the customer sends a
purchase order (PO) through one of several channels—email, electronic data interchange (EDI),
or a self-service online portal. This marks the first formal step in converting a customer request
into a contractual sale.
Upon receipt of the PO, the Sales Operations Order Management team verifies the customer's
account details. This includes confirming the account is active, valid, and within its assigned
credit limit. Simultaneously, the team reviews the order contents—checking that the requested
products or services are available in inventory or production queue, and that pricing aligns with
existing agreements or current rate cards. Any applicable discounts, taxes, or delivery terms are
also reviewed at this stage.
Once the preliminary checks are completed and validated, a sales order (SO) is created in the
ERP system. The SO captures all relevant order details: item codes, quantities, unit prices,
customer shipping instructions, billing contact information, and requested delivery dates. The
system performs automatic validation to catch missing fields, incorrect pricing, or mismatches
with customer terms, helping reduce manual errors and downstream corrections.
If the order includes non-standard terms—such as unusually large quantities, extended payment
periods, special discounts, or pricing exceptions—it is flagged for credit team or sales
management approval. Similarly, if the order value exceeds the customer’s available credit limit,
the system routes the order for credit review. Only after the necessary approvals are obtained
does the sales order proceed to confirmation.
Once approved and confirmed, the sales order becomes an official business commitment within
the system. It serves as the core reference document for all downstream processes: picking,
shipping, billing, and revenue recognition. At this point, an acknowledgment is sent to the
customer, confirming that the order has been accepted and is being processed.
Controls:
Auto-rejection of expired or invalid PO numbers
System-enforced pricing integrity and terms
Manual override restricted to senior staff
III. Order Fulfillment and Shipping
Process Owners: Warehouse, Logistics, Inventory Control
Objective: Pick, pack, and dispatch the ordered goods accurately and timely
Once a sales order is approved and confirmed in the system, the order fulfillment and shipping
process is initiated. The warehouse or distribution center receives a system-generated pick list
that contains the specific items, quantities, and storage locations required to fulfill the order.
Picking is carried out in accordance with inventory management policy, First-In, First-Out
(FIFO), to ensure product freshness, proper stock rotation, and compliance with inventory aging
controls.
Warehouse personnel physically retrieve the items from their designated locations and scan or
verify them against the pick list to ensure accuracy. After picking, the goods are moved to a
packing station where they are securely packaged according to the product type, shipment
method, and customer requirements. Labeling is completed to reflect item codes, shipment
details, and any necessary handling instructions.
Once packing is complete, shipping documents are prepared, including the packing slip, which
lists the contents of the shipment, and the bill of lading (BOL), which serves as a formal contract
between the shipper and the carrier. The warehouse team double-checks that all shipment
components match the sales order before proceeding. Any discrepancies are flagged immediately
to prevent incorrect deliveries and customer dissatisfaction.
When the order is ready, the logistics team arranges for pickup or dispatch using either in-house
transportation or third-party carriers. Upon dispatch, a shipping confirmation is entered into the
ERP system. This action not only updates the inventory records—reducing the available stock—
but also triggers the next phase of the revenue process: invoice generation. For high-value or
critical shipments, a proof of delivery (POD) is obtained from the carrier or customer and
uploaded into the system as part of the order’s closure documentation.
To enhance transparency and customer satisfaction, shipment status is actively communicated.
Customers may receive automated tracking emails, order updates through a portal, or direct
communication from their account representative. Providing this visibility helps build trust and
allows the customer to plan for receipt and inspection of the goods.
Controls:
Inventory discrepancies logged and reported
RFID/barcode scanning to minimize human error
Segregation of picking and packing for high-value items
IV. Billing and Invoicing
Process Owners: Billing Department, AR, Sales
Objective: Generate accurate, timely invoices and initiate receivables
The billing and invoicing process is triggered immediately after the successful confirmation of a
shipment or the completion of a billable service. At this point, the ERP system automatically
pulls data from the sales order and delivery documentation to generate a draft invoice. This
invoice includes key details such as product descriptions, quantities shipped, unit prices,
applicable discounts, freight charges, and taxes—ensuring the customer is billed accurately
according to agreed terms.
Before the invoice is finalized and issued to the customer, the billing team performs a thorough
review. They validate that the quantities billed match the quantities shipped, confirm pricing
against sales contracts or price lists, and ensure taxes and delivery charges are correctly applied.
If any inconsistencies or errors are detected—such as missing items, incorrect tax codes, or price
mismatches—they are flagged for correction before the invoice is released.
Once validated, the invoice is approved and sent to the customer using their preferred delivery
method. This is typically done through email, electronic data interchange (EDI), or a customer
self-service portal. Timely delivery of the invoice is critical to maintaining smooth customer
communication and minimizing delays in payment cycles. A copy of the invoice is also stored in
the ERP system for internal tracking and audit purposes.
At the same time, the invoice is recorded in the Accounts Receivable subledger, creating an open
item against the customer’s account. The invoice starts aging immediately based on the
predefined payment terms (e.g., Net 30, Net 60). This aging determines when the invoice
becomes due and forms the basis for tracking the company’s Days Sales Outstanding (DSO) and
overall collection performance.
To maintain the integrity of the billing process, several system and process controls are enforced.
These include automated invoice numbering to avoid duplicates, tax validation rules to ensure
compliance, and mandatory checks for invoice completeness. Additionally, access to invoice
editing is restricted to authorized personnel to prevent unauthorized changes or fraudulent
billing.
Controls:
Approval workflow for invoices over threshold
Invoice sequencing validation
Duplicate billing prevention (based on SO and delivery)
V. Cash Collection and Application
Process Owners: Treasury, Accounts Receivable, Collections
Objective: Record customer payments and reconcile to invoices
Once an invoice is issued, the customer is expected to process payment in accordance with the
agreed payment terms. These terms may vary but typically range from immediate payment to
Net 30 or Net 60. Customers can remit payment through various channels such as checks, wire
transfers, ACH, or digital payment platforms. In many cases, they provide remittance advice to
specify which invoices the payment applies to, which helps streamline the application process.
The Treasury or Accounts Receivable (AR) team monitors bank accounts and payment portals
regularly to identify and record incoming payments. Once a payment is received, the team
verifies its source, amount, and payment date, then records the transaction in the ERP system.
This ensures that all received funds are accounted for and linked to the appropriate customer
account.
Payments that match open invoices exactly are applied directly, and the corresponding invoices
are marked as paid. However, if a payment is incomplete, excessive, or lacks proper reference
details, it is temporarily posted to an unapplied cash or suspense account. The AR team then
investigates these unmatched payments by reviewing remittance details or contacting the
customer directly.
Short payments are common and may arise due to disputes, pricing errors, discounts, or returns.
In such cases, the AR team works with the Collections or Sales team to understand the reason for
the deduction and determine whether a credit memo or adjustment is needed. Overpayments or
prepayments, on the other hand, are either applied to future invoices or held on the customer
account as a credit, unless a refund is requested and approved.
To maintain accurate financial records, the AR team regularly reviews unapplied cash, aging
reports, and open items. Follow-ups are conducted for past-due accounts, and if necessary,
customers are contacted for clarification or resolution. Escalations may occur when payment
issues are persistent, or when disputes cannot be resolved at the operational level.
Controls:
Dual control for cash posting
Suspense accounts for unidentified payments
Auto-matching algorithms with exception queues
VI. Reconciliation and Reporting
Process Owners: Finance, Internal Audit, Controlling
Objective: Ensure completeness, accuracy, and integrity of revenue and receivables
At the end of each financial period, the reconciliation and reporting phase begins to ensure that
revenue and receivables are accurately recorded and reflected in the company’s financial
statements.
The process starts with the finance team retrieving key data from both the Accounts Receivable
(AR) subledger and the General Ledger (GL). This includes total outstanding receivables,
individual invoice balances, credit memos, and any cash receipts posted during the period. The
primary objective is to confirm that the balance of the AR subledger matches the balance
recorded in the AR control account in the GL.
If discrepancies arise between these two sources, the team investigates the root cause. Any errors
are corrected, and unresolved issues are escalated to the controller or finance lead for further
review and resolution.
Simultaneously, the finance team performs the bank reconciliation. This involves comparing
actual cash deposits shown in the bank statement with cash receipts recorded in the ERP system.
Payments without sufficient documentation or invoice references are temporarily posted to a
suspense account and flagged for the AR team to investigate. The goal is to ensure all customer
payments are applied correctly and timely.
Once cash and receivables are reconciled, the team generates the Aging Report, which
categorizes outstanding receivables by due date buckets (e.g., 0–30 days, 31–60 days, etc.). A
review of aged balances and unapplied payments helps identify potential collection issues,
disputes, or adjustments. Any material or overdue balances are escalated to the collections team
or sales account owners for follow-up.
After all reconciliations are complete, the finance team prepares internal reports summarizing
key performance indicators (KPIs), including Days Sales Outstanding (DSO), collection
effectiveness, write-offs, and overall revenue performance. These reports are reviewed and
approved by senior finance leaders.
Finally, the AR module is formally closed for the period to prevent backdated entries, and all
reconciliation workpapers are archived in line with audit and retention policies. This ensures
traceability and compliance for both internal and external audit purposes.
Controls:
Monthly close checklists
External auditor walkthroughs
Segregation of duties matrix
