This blog provides an overview of the Bills Receivable feature in Fusion Oracle Receivables Release 11.

1.INTRODUCTION

A Bills Receivable (BR) is a legal document, binding the debtor (signer) to pay a certain sum at a future date or on demand. By entering into a BR agreement, the debtor promises to pay the creditor the due on the due date. It is a more secure debit item than invoice. It effectively replaces the open debt on the transactions to which the bill is applied.

Bills Receivable

For example, Mr. A (supplier of goods) will issue a Bills Receivable to Mr. B (Buyer of goods), after the invoices have been sent. Mr. B who will be the drawee in this case, will accept the BR through a signature, and will send it back to Mr. A. The newly issues Bills Receivable will be the open debit item, in place of an invoice.

2.TYPES OF BILLS RECEIVABLE

Bills_receivable

  • Signed Bills Receivable

The type of Bills Receivable for which acceptance by the drawee through a signature is compulsory. The signed Bill Receivable has more legal force than a regular invoice in reinforcing the creditor’s right to be paid, on maturity date. The debtor’s acceptance indicates he/she consciously entered into an agreement with the creditor.
signed-bill-receivable

  • Unsigned Bills Receivable

The type of Bills Receivable does not need to be accepted by the debtor, through a signature. In case of nonpayment on maturity date, the invoice becomes the document to enforce the legal right and the Bills Receivable document will lose its validity.
unsigned-bill-receivable

  • Drawee Issued Bills Receivable

The type of Bills Receivable issued by the drawee, as a promise, to pay the due amount on a future date. The maturity date is decided by the Creditor. It is also known as Promissory Note, indicating the promise of a drawee.
Drawee-Issued-Bills-Receivable

3.REMITTANCE

Remittance is used to collect the payment from a bank in the form of an advance, by transferring the Bills Receivable to the bank. On the maturity date, the debtor will make the payment to the bank. Also, remittance is used to outsource the collection process of the due amount from drawee, to the Financial Institution/Third Party. In short, Remittance can be used for the Collection and Working Capital requirements.
remittance

4.Types of Remittance

Types-of-remittance

  • Standard Remittance

The type of Bills Receivable remittance for which the bank collects payment in full from the drawee on the maturity date and transfers the funds directly to the creditor’s bank account. The drawer outsources the collection process to the bank/financial institution. The creditor bears the financial risk of customer default.

For example, Mr. A (issuer of BR) will outsource the collection of funds from Mr. B (drawee) to XYZ bank, who will remit the funds on the maturity date to A’s account.

  • Factor Remittance

The type of Bills Receivable remittance for which the bank lends funds to the creditor.  A factored remittance may be with or without recourse. Through factoring, the drawer is able to obtain funds for satisfying the working capital requirements, in the form of a loan/advance from the bank/third party.
Factor-Remittance

 

1.Factored with Recourse

 The type of factored remittance for which the creditor is responsible for the customer’s payment and bears the risk of customer default.  If the drawee does not pay on the maturity date, the creditor will reimburse the bank for the full due amount. The bank has the legal right to recover the funds from the creditor’s bank account, in case the amount is not received from the drawee on the maturity date. The amount remains as a liability and is recorded in the Short-Term Debt Account, till the drawee pays the bank/third party on the maturity date.

For example, Mr. A (issuer of BR) will transfer the BR to XYZ bank, in exchange for the advance/loan. The advance will become a liability in Mr. A’s books of accounts. Mr. A will be relieved of this liability, till Mr. B pays back the due amount to XYZ bank, on the maturity date. If Mr. B fails to pay, XYZ bank has the legal right to claim back the amount from Mr. A.

 

2.Factored with Recourse

The type of factored remittance for which the creditor is responsible for the customer’s payment and bears the risk of customer default.  If the drawee does not pay on the maturity date, the creditor will reimburse the bank for the full due amount. The bank has the legal right to recover the funds from the creditor’s bank account, in case the amount is not received from the drawee on the maturity date. The amount remains as a liability and is recorded in the Short-Term Debt Account, till the drawee pays the bank/third party on the maturity date.

For example, Mr. A (issuer of BR) will transfer the BR to XYZ bank, in exchange for the advance/loan. The advance will become a liability in Mr. A’s books of accounts. Mr. A will be relieved of this liability, till Mr. B pays back the due amount to XYZ bank, on the maturity date. If Mr. B fails to pay, XYZ bank has the legal right to claim back the amount from Mr. A.

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About the Author

Prerit Chelani is the Certified Financial Consultant with an experience of 9+ years including both Oracle ERP and Financial Cloud. He has been part of end to end implementation projects on cloud side. He comes with a Chartered Accountancy background and is very well versed with Financial concepts and Cloud Process.