The Centralized payment feature in D365 can be used by organizations that have multiple legal entities, but payments are made in one legal entity on behalf of the other legal entities. Using this feature, you can settle invoices and payments in one legal entity across several legal entities.
Scenario
The Contoso group of companies is an organization that has three legal entities USMF, USSI and USRT located in different part of the United States. While all these companies process transactions, all customer and vendor payments are solely handled by USMF.
Prerequisites
Before you begin using the centralized payment feature, you need to ensure you have some basic setup:
A. The Organization hierarchy
An organization hierarchy must be set up to include all the legal entities that will form the structure for Centralized payments.
To set up the Organizational hierarchy, go to Organization administration> Organizations> Organization hierarchies.
Click on New and enter a Name to create a new Organization hierarchy. Once you have created a new hierarchy name click on View.
You can then click on Edit and click on Insert> Legal entity. You can start inserting the main legal entity and its subsidiaries. In this example, I have added USMF as the main company and two subsidiaries, USSI and USRT. I can make payments in USMF on behalf of USSI and USRT through the Centralized payments feature.
B. Hierarchy purpose
Once you have finished setting up the Organizational hierarchy, you will need to assign a purpose to the hierarchy.
To do this, click on Purposes, and from the predefined list of purposes select Centralized payments. Under Assigned hierarchies click Add and select the Organization hierarchy that you created.
You will now have to publish the Organization hierarchy to make Centralized payments. To publish the hierarchy, you can click on View hierarchy in the Organization hierarchy purposes form and click on View hierarchy. Click on Publish and give the effective date and click on Publish again.
C. Intercompany accounting
The next basic setup to be done is the Intercompany accounting setup. Navigate to General ledger> Posting setup> Intercompany accounting to complete this step.
In this setup, you can define whether to post cash discounts and exchange rate gains or losses to the legal entity of the invoice or to the legal entity of the payment.
D. Mapping vendor/ customer accounts
Vendors must be mapped to the Global address book between each legal entity. If a payment is being made to a vendor, then you need to make sure that the Vendor account which is set up across several legal entities is associated with the same Party ID. Similarly, if you have a customer that you sell to or transact with across various legal entities, that customer account must be set up across different legal entities but needs to be mapped to the same Party ID.
In the image below I have included an example of a vendor organization that is set up across USMF, USRT, and USSI but is mapped to the same Party ID.
Centralized payments process – Vendor payments
After you have completed the basic setup listed above, you can process payments for all the legal entities from one legal entity.
Go to the payment journal by clicking on Accounts payable> Payments> Vendor payment journal.
Click New to add a new journal and then click on Lines. Select the Vendor account and then click on Settle transactions.
You should be able to view invoices from the other legal entities (from USRT and USSI in this example) here so you can select them and process the Payment.
After you have selected the invoices to pay, you can click Ok and then post the payment.
Vendor Settlement inquiry
You can view the settled transactions for the vendor by navigating to Accounts payable> Vendors> All vendors and selecting the vendor you want to view the transactions for.
In the action pane of the Vendor form, click on Vendor> Transactions> Global transactions to view the transactions across all companies.
You can further select a specific transaction line and click on View settlements to get the settlement details of that transaction.
Accounting in Centralized payments
In the Centralized payments process, the due to and due from transactions for each legal entity are settled automatically. You can view the voucher entries by selecting the transaction line and then clicking on Voucher.
Voucher for payment that is generated and posted in USMF for vendor Prestige traders where the Accounts payable account is debited, and Cash or bank account is credited.
Voucher for USMF payment that is settled with USRT Invoice.
Details of posting in USMF – Here the Due from USRT account (debit account in intercompany setup) is debited and the Accounts payable account is credited.
Details of posting in USRT – In USRT, the Accounts payable account is debited and the Due to USMF (Credit account in intercompany setup) account is credited.
This is how you make vendor payments on behalf of several legal entities from one legal entity.
In the following section I have described the Customer payment process.
Centralized payments process – Customer payments
To process centralized payments for customers you will have to navigate to Accounts receivable> Payments> Customer payment journal in company USMF.
Click New to create a customer payment journal and then click on Lines.
Select the Customer account and then click on Settle transactions. The customer invoices from both USSI and USRT will be available so you can mark and settle the ones you want.
You can then post the payment after selecting the right offset account.
Customer Settlement Inquiry
To view the settled transactions for a customer across all the companies you can go to Accounts receivables> Customers> All customers and select the customer. In the action, pane click on Customer> Transactions> Global transactions.
You can then select a specific invoice line and click on view settlement to get the payment details.
Accounting
You can view the voucher entries by selecting the transaction line and then clicking on Voucher.
Voucher entry for the payment that is received in USMF for customer Flamingo wholesales where the Cash or Bank account is debited and the Accounts Receivable account is credited.
Vouchers for USMF payment that is settled with USSI Invoice.
Posting details in USMF – During settlement, the Accounts Receivable account is debited and the Due to USSI account (credit account in intercompany setup) is credited.
Posting details in USSI – In the USSI company, Due from USMF account (Debit account in intercompany setup) is debited while the Accounts receivable account is credited.
This concludes the process of Centralized payments for customers.
Stay tuned for more blogs on other topics in D365 Finance and Operations!