Budgeting In Dynamics 365 Finance And Operations - PART 1 - Solution components

BUDGETING IN DYNAMICS 365 FINANCE AND OPERATIONS - PART 1 - SOLUTION COMPONENTS

This article series explains and demonstrates Budgeting in Dynamics 365 Finance And Operations . The purpose is to provide a unique implementation resource. Whole series will be in 4 parts as follows:

PART 1: Solution components
PART 2: Budget planning
PART 3: Budget entry
PART 4: Budget control

Let's get started with PART 1.

CONTENT Introduction Budget types and configuration requirements Conclusion

INTRODUCTION

Budgeting allows companies to benefit from forecasting and financial insights by comparing actual versus allocated budgets. A budget can be created for a ledger account, a project, an employee, a fixed asset, a demand forecast, or inventory.

Budget module has 3 sub processes in Dynamics 365 Finance:

• Budget Planning: The process of creating a budget for a specific period. This step is optional; you can skip it and upload the budget directly into the system using "Budget register entries."
• Budget Register Entries: Entries based on estimated total financial requirements. The budget can be adjusted or rolled over to the next fiscal year. Ledger accounts and their corresponding budget amounts are registered as part of this process.
• Budget Control: This feature issues warnings or errors based on predefined budget limits and parameters. Errors can block postings to prevent exceeding the allocated budget.

How to plan budget?

There are several common approaches to budget planning:

• Historical Basis: This method involves creating a budget based on historical data by comparing the previous budget with actual expenditures. Typically, the new budget may be adjusted by a percentage increase, such as 10% over the previous year.
• Top-Down Approach: In this approach, the overall budget for the legal entity is allocated to cost centers through mid-level hierarchies.
• Bottom-Up Approach: Each cost center submits its estimated budget needs, and the CFO makes final adjustments. Ultimately, these individual estimates are consolidated to form the overall budget for the legal entity.

BUDGET TYPES AND CONFIGURATION REQUIREMENTS

In Dynamics 365 Finance and Operations (D365FO), budgeting is a comprehensive feature that allows organizations to plan, control, and monitor financial performance. Here’s an elaboration of each budget type mentioned, along with the required configurations:

1. Ledger Accounts Budgeting

Ledger account budgeting is used to define expected income and expenses for specific general ledger accounts, allowing you to compare actual financial results against budgeted amounts. Required Configurations are as below:

• Budget Model: Create a budget model to represent the budget scenario (e.g., annual budget, quarterly budget).
• Budget Codes: Set up budget codes to classify and track different types of budgets (e.g., original budget, revised budget).
• Budget Register Entries: Define budget register entries to input budget amounts for the selected ledger accounts.
• Ledger Budgeting Parameters: Configure parameters such as whether the system should check for budget availability during transactions.
• Budget Control: Enable budget control if you want to enforce spending limits based on the budgeted amounts.

2. Project Budgeting

Project budgeting is used to plan and control costs associated with specific projects. This includes estimating costs and revenue, which can be monitored throughout the project lifecycle. Required Configurations are as below:

• Project Setup: Create a project and define its type (e.g., time and material, fixed-price).
• Cost Templates: Set up cost templates to categorize budget lines (e.g., labor, materials).
• Project Budget Approvals: Enable a budget approval workflow to review and approve budget submissions.
• Budget Control: Optionally activate budget control to prevent overspending based on project budget allocations.

Forecast Models: Use forecast models to compare budget forecasts with actual project expenditures.

3. Employee Budgeting

Employee budgeting is used to plan and manage labor costs, including salaries, bonuses, and other employee-related expenses. Required Configurations are as below:

• Human Resources Module Integration: Enable integration with the HR module for employee data.
• Compensation Plans: Define compensation plans to estimate salary expenses.
• Labor Cost Groups: Set up labor cost groups to categorize employees based on their roles and compensation levels.
• Budget Allocations: Use budget register entries to allocate amounts for different labor cost categories.

4. Fixed Asset Budgeting

Fixed asset budgeting involves planning for capital expenditures related to asset acquisitions, improvements, or disposals. It helps companies allocate funds for long-term investments in assets. Required configurations are 

• Fixed Asset Groups: Set up fixed asset groups to categorize assets based on type (e.g., machinery, vehicles).
• Asset Budgets: Create asset budget forecasts for planned acquisitions or improvements.
• Capital Budgeting Projects: Link fixed asset budgets to capital projects to track the lifecycle of asset investments.
• Budget Register Entries: Use budget register entries to record budgeted amounts for fixed assets.

5. Demand Forecast Budgeting

Demand forecast budgeting involves estimating future demand for products and aligning budget allocations based on anticipated sales or production needs. This is typically used in manufacturing or retail environments. Required Configurations are as below:

• Demand Forecast Models: Set up demand forecast models using historical data or statistical methods (e.g., ARIMA, ETS).
• Sales and Operations Planning (S&OP): Enable S&OP integration for aligning demand forecasts with budget planning.
• Budget Allocations: Allocate budget based on forecasted demand for raw materials and finished goods.
• Forecast Accuracy Tracking: Configure the system to track forecast accuracy and adjust budgets accordingly.

6. Inventory Budgeting

Inventory budgeting focuses on estimating the cost of goods sold (COGS) and planning inventory purchases based on sales forecasts or production requirements. It helps control inventory levels and manage purchasing budgets. Required Configurations are as below:

• Inventory Cost Groups: Define cost groups to categorize inventory items for budgeting purposes.
• Item Allocation Keys: Set up item allocation keys to distribute budget amounts across different inventory items.
• Procurement Budget Integration: Integrate inventory budgeting with procurement processes to control spending on stock purchases.
• Budget Control Rules: Configure budget control rules to enforce spending limits based on allocated inventory budgets.

Summary of Key Budgeting Configurations

Budget Type Key Configurations are summarized as below:

• Ledger Accounts: Budget models, codes, register entries, parameters, budget control
• Projects: Project setup, cost templates, approval workflow, forecast models
• Employees: HR integration, compensation plans, labor cost groups, allocations
• Fixed Assets: Asset groups, capital projects, budget entries
• Demand Forecast: Forecast models, S&OP, budget allocations, forecast accuracy
• Inventory: Cost groups, item allocation keys, procurement integration

SUMMARY

In this first part of the article series on Budgeting in Dynamics 365 Finance and Operations, we explored the foundational components of the budgeting process. We covered key budget types, including ledger accounts, projects, employee costs, fixed assets, demand forecasts, and inventory. For each budget type, we provided detailed configurations and setup requirements, such as budget models, register entries, integration options, and control parameters. These components form the backbone of a well-structured budgeting process, enabling organizations to effectively plan, monitor, and control financial performance. In the next article, we will dive deeper into the budget planning process.

Unannounced Sales Returns in Dynamics 365 Finance and Operations

UNANNOUNCED SALES RETURNS

CONTENT Introduction Return details Receive unannounced returned item by the return details Mixed license plate receiving Blind returns Receive unannounced returned item by blind return  Mixed license plate receiving  Required configurations Blind return demo

Introduction

In Microsoft Dynamics 365 Supply Chain Management, the sales return process typically begins with the creation of a Return Material Authorization (RMA) order. The RMA order is crucial for managing returns, particularly when the reason for the return is unclear or not immediately disclosed. It serves as the central document guiding the subsequent steps in the return process, including warehouse arrival and receiving procedures.

However, there are instances where customers may return products without prior notice or an associated order. In such cases, the standard RMA process is bypassed, requiring special handling to manage these unplanned or unannounced returns.

This article will walk you through configuring Supply Chain Management to handle unannounced returns and the procedures for receiving these returns in the warehouse. 

For example, if a customer arrives at the bay door wanting to return an item without having a return material authorization (RMA), it’s considered an unannounced sales return.

This can be handled in 2 ways.

• Return details
• Blind returns

RETURN DETAILS

In this scenario, the customer doesn’t need to contact the seller; simply bringing the RETURN LABEL or providing the RETURN DETAIL ID created at the time of order shipment is sufficient. The RETURN LABEL or RETURN DETAIL ID contains the necessary return details (return ID, original order ID, shipment ID, order lines, return until dates) required to process the return.

A return detail record can be created in two ways:

• Order creation > Order shipment > Packing > Return label creation via the small parcel shipment process
• Order creation > Order shipment > Shipment confirmation > Return details creation

In summary, each shipment process can create either a return label (if containerization is used) or a return details ID with an expiration date (if the expiration date is set up).

Receiving Unannounced Returned Items by Return Details

Assumption: The customer already has the return details.

1. Open the Warehouse Management mobile app.
2. Select Return Details Receiving (You'll need to create menu/menu item first).
3. Scan the Return ID.
4. Scan the Item ID.
5. System generates a License Plate (LP).
6. Enter the Quantity.
7. Select the Disposition Code.

Please note that a "Work Completed" message will appear.

Important: Do not forget to click CANCEL to release the flow and complete the process.

All unannounced returns will go to the Mixed License Plate Receiving screen.

Mixed License Plate Receiving

1. Go to Warehouse Management > Inquiries and Reports > Mixed License Plate Receiving.
2. Note that the received license plate appears on the list page.
3. Select the license plate and click the Complete License Plate button in the License Plate Action pane.

• An arrival journal is automatically posted.
• A "Return Orders" work order is automatically created to move the item from the default receiving location to the destination location, based on the location directives setup.
• A new RMA is created with a line item that has a "Registered" status.

The next steps are to post the packing slip and invoice. This is not in this article's scope.

BLIND RETURNS

In this scenario, the selling company doesn’t maintain return details, which means the customer doesn’t have any reference information like a return label, return details ID, original sales order, shipment ID, RMA, etc. This is considered a complete blind return. In other words, the customer doesn’t need to contact the seller before the actual return.

Receiving Unannounced Returned Items by Blind Return

Assumption: The customer doesn’t have any reference data (e.g., no return label, no order number).

1. Open the Warehouse Management mobile app.
2. Select Blind Return.
3. Scan the Customer ID.
4. Scan the Item ID.
5. The system generates a License Plate (LP).
6. Enter the Quantity.
7. Select the Disposition Code.

Please note that a "Work Completed" message will appear.

Important: Do not forget to click CANCEL to release the flow and complete the process.

All unannounced returns will go to the Mixed License Plate Receiving screen.

Mixed License Plate Receiving

1. Go to Warehouse Management > Inquiries and Reports > Mixed License Plate Receiving.
2. Note that the received license plate appears on the list page.
3. Select the license plate and click the Complete License Plate button in the License Plate Action pane.

• An arrival journal is automatically posted.
• A Return Order's work order is automatically created to move the item from the default receiving location to the destination location based on the location directives setup.
• A new RMA is created with a line item that has a "Registered" status.

The next steps are to post the packing slip and invoice.

REQUIRED CONFIGURATIONS

Warehouse Parameters: Go to Warehouse Management > Setup > Warehouse Management Parameters > Returns fast tab.

• Default Return Order Journal: Select a journal name.
• Enable Return Details Creation: Set to Yes (Enable this process if it’s used). If this parameter is set to Yes, then activate the Enable Sales Load Line Picking Route parameter on the Loads fast tab. This links sales line inventory transactions and load lines.
• Enable Return Order Creation from Mobile Device: Set to Yes (Always enable this. This is for both "return details" and "blind return").

Number Sequence Configurations:

• Load Line Inventory Pick: This number is used on the load line’s "Load Line Inventory Pick" tab.
• Return ID: Configure the sequence for the Return ID.

Return Item Policies: Go to Warehouse Management > Setup > Return Items > Return Item Policies.

• Determine which items can be returned.
• Set a maximum number of days allowed for returning the selected items, if applicable.

Return Item Receiving Policies: Go to Warehouse Management > Setup > Mobile Device > Return Item Receiving Policies.

• Define what functionality is in use. Options include: Return Details, Blind Returns.

Mobile Device Menu Items: Go to Warehouse Management > Setup > Mobile Device > Mobile Device Menu Items.

• Create a Blind Return menu item to receive return items.
• Mode: Work.
• Work Creation Process: Return Item Receiving.
• Generate License Plate: Yes (since the returned item is placed in the receiving location).
• Display Disposition Code: Yes (select one of the created policies, select Blind here).

Mobile Device Menu: Go to Warehouse Management > Setup > Mobile Device > Mobile Device Menu.

• Create a menu that contains the Blind Return menu item.

Mobile Device Disposition Code: Go to Warehouse Management > Setup > Mobile Device > Disposition Codes.

• Create a new disposition code for mobile device returns.
• Disposition Code: Return Credit
• Inventory Status: Available
• Work Template: Returns (select a return work template).
• Return Disposition Code: Credit (select a disposition code).

BLIND RETURN DEMO

A blind return occurs when a return is made without an existing RMA order or any pre-recorded return details, and there is no need to reference the original sales order or shipment during the receiving process. During the return item receiving process, workers must use the mobile app.

Go to main mobile device menu, select Return > Blind return

All you know about this return is Customer account. Enter or scan the customer account. Hit OK.

Enter the item id.

Scan the license plate if there is any, otherwise, leave it empty.

Enter the return quantity.

Select the disposition code.

Hit OK.

Note that system generates license plate if you leave it empty.

Hit OK.

Note that work is now completed.

DO NOT forget to hit CANCEL to complete the flow. If you don't, generated license plate cannot be processed.

System will take you to previous menu when you hit Cancel.

We already know that "All unannounced returns will go to the Mixed License Plate Receiving screen". Let's review the license plate that we just received. 

Go to Warehouse management >> Inquiries and reports >> Mixed license plate receiving.

Note that the received license plate appears on the list page. Select the license plate and click the Complete License Plate button in the License Plate Action pane.

When the completion ends, LP disappears from this screen.

When "Show completed license plate" is checked, you can now see that RMA number and Work creation numbers are now populated.

Completing License Plate results with below activities:

• An arrival journal is automatically posted.
• A Return Order's work order is automatically created to move the item from the default receiving location to the destination location based on the location directives setup.
• A new RMA is created with a line item that has a "Registered" status.

Posted arrival journal is as below:

Created return order's work order is as below:

Created RMA is as below:

In conclusion, the ability to seamlessly receive unannounced sales returns in Microsoft Dynamics 365 Supply Chain Management showcases the system's flexibility and efficiency, allowing businesses to effortlessly handle unexpected situations while maintaining operational fluidity and enhancing customer satisfaction. This capability underscores the beauty of a well-configured system that adapts to real-world challenges with ease.

Vendor Prepayments in Dynamics 365 Finance & Operations

VENDOR PREPAYMENTS IN DYNAMICS 365 FINANCE AND OPERATIONS

CONTENT Introduction Vendor prepayment reasons Vendor prepayment types in D365FO Setup requirements for vendor prepayments Demo Conclusion

INTRODUCTION

A vendor prepayment is an advance payment made to a supplier before goods or services are received. In Dynamics 365 Finance & Operations (D365FO), vendor prepayment functionality enables businesses to streamline payment processes, mitigate financial risks, and maintain healthy relationships with suppliers.

In this article, we will explore the importance of vendor prepayments, review the necessary configurations within D365FO, and walk through a demonstration of how to process vendor prepayments. Finally, we will wrap up with some key takeaways and best practices.

Vendor Prepayments Reasons

There are several reasons why organizations utilize vendor prepayments:

• Supplier Relationship Management: Making a prepayment can build trust with suppliers and improve relationships, especially with new vendors or during periods of high demand when suppliers may require upfront payments.
• Risk Mitigation: Prepayments help mitigate financial risks, particularly when dealing with overseas suppliers or when a vendor has specific prepayment terms outlined in the contract.
• Cash Flow Management: Some businesses opt for prepayments as a way to manage cash flow effectively, locking in pricing and securing essential goods or services before price changes or supply shortages occur.
• Compliance and Contractual Requirements: Prepayments may be necessary to comply with certain contractual obligations or to meet industry-specific regulations.

By leveraging the prepayment functionality in D365FO, organizations can ensure smooth payment processing and maintain accurate financial records throughout the procurement cycle.

Vendor Prepayment Types in D365FO

Organizations can use advance payments (prepayments) in 2 different ways. 

• Prepayment invoicing: This method creates a prepayment invoice that's associated with a purchase order. This method is easier for tracking prepayment sources/reasons. Prepayment invoices are frequently used in business transactions, where a vendor requests an advance deposit before fulfilling a purchase order. This is often the case for custom goods or services that require upfront payments. With the prepayment invoicing feature, you can specify a prepayment amount on the purchase order, record and process the prepayment invoice, and then apply this prepayment against the final invoice once it is issued.
• Prepayments: This method creates prepayment journal vouchers by creating journal entries and marking them as prepayment journal vouchers. For this method, you can't track which prepayments to a vendor are made against which purchase orders. However, you can mark a posted prepayment for settlement against a purchase order. In several countries and regions, accounting standards require that prepayments made to vendors or received from customers are recorded in dedicated ledger accounts rather than the general customer or vendor accounts. These prepayments are initially posted to specific prepayment accounts. Once a sales order or purchase order is processed, and the invoice is issued, the payment is applied, reversing the prepayment entries. The invoice amounts are then automatically transferred to the standard customer or vendor summary accounts. 

Microsoft has has a detailed chart that compares these 2 methods:

This article focuses on prepayments process that is done from journal entries since it's more flexible.

Setup Requirements for Vendor Prepayments

A new prepayment posting profile: Since prepayment is a liability that needs to be tracked, it deserves having a separate account. The only way of reflecting this approach in D365FO is to create another posting profile for vendor prepayments.

Accounts payable >> Setup >> Accounts payable parameters

Go to Ledger and sales tax tab and select the prepayment posting profile in the 'Posting profile for payment journal with prepayment' field.

New Prepayment Journal Name: As a best practice, each type of transaction should have its own distinct journal name.

General ledger >> Journal setup >> Journal names

Everything is ready, let's make a prepayment now.

DEMO

Accounts payable >> Payments >> Vendor payment journal

Create a new header and select prepayment journal.

Go to the lines.

Select vendor, and populate the prepayment amount in the debit field.

Switch to payment tab.

Toggle the 'Prepayment journal voucher' parameter on. Note that the system automatically updates the 'Posting profile'.

When the journal is posted, generated voucher is as below.

Let's take a look at the vendor balance.

Accounts payable >> Vendors >> All vendors
Find the vendor and click on Balance button as shown below.

Please note that the vendor balance is currently positive due to the recorded prepayment. This reflects the advance payment made to the vendor before the receipt of goods or services.

Let's assume that we got the invoice that is $10K from the vendor. It's now time to register vendor's real invoice.

Go to Accounts payable >> Invoices >> Invoice journal

Enter the header information and click on the lines.

Enter the line information such as vendor account, invoice date, invoice number and invoice amount.

Click on 'Settle transactions' as shown below.

Select the prepayment voucher.

Click OK.

Note that the system notifies you since the selected voucher is a prepayment.

Click on Yes.

On the journal line, the system notifies you that the selected voucher amount intended for settlement differs from the amount entered on the journal line. The system then prompts you to confirm whether you want to adjust the invoice amount.

Post the invoice journal now.

Click on the Voucher button.

Note that the amount is $10,000 as expected.

Let's take a quick look at the vendor's new balance.

Note that vendor's new balance is now $8,000 as expected.

Finally let's take a look at the vendor's transactions.

CONCLUSION

Vendor prepayments in D365FO offer an efficient way to manage advance payments and meet specific procurement needs. This article demonstrated how to configure the necessary setup for prepayments and provided a walkthrough of processing prepayments via journal entries. The system’s prepayment functionality ensures accurate accounting by tracking these payments separately and automating the settlement process against vendor invoices. By following these steps, users can maintain clear financial records, reduce reconciliation efforts, and handle prepayments in compliance with local accounting standards.