Dynamics 365 Accounts Receivable - Simply Explained

You made the sale, you sent the invoice, but when does the money actually hit your account? And what happens if it doesn't? Welcome to another episode of Microsoft Knowledge Nuggets on M365, FM, I'm Mercopitas. Today we're putting Dynamics 365 accounts receivable into plain English. By the end of this episode, you'll follow one customer balance from the sale all the way to payment, and you'll see what the business does when that payment runs late. Here's the simplest definition. Accounts receivable tracks the money customers owe you along with the payments that come back. Think of it as a filing cabinet for the money inside of your business. Every customer gets a folder. That folder holds their invoices, their payments, their due dates, and any follow-up work. Now, a spreadsheet can list those things, but it can't reliably connect a new sale, and agree due date, a bank payment, and a credit decision across the whole company. Dynamics 365 Finance can. So let's start at the beginning with the customer account. One, the customer account, the starting point for every invoice. Imagine you're working with a customer called Northwind Equipment. Before they can place an order, Dynamics 365 needs more than just a name and phone number. It needs the financial rules for doing business with Northwind. The customer account is that labeled folder in our filing cabinet. It holds all the details that tell Dynamics 365 who the customer is, where invoices should go, how they normally pay, and how much credit the company is willing to extend. That might sound like basic setup, but it stops a lot of confusion later. For example, the account stores the customers invoice address. That's often different from the delivery address. Equipment might chip to a factory while invoices go to the finance office. It also holds payment terms. Payment terms answer a simple question. How long does this customer have to pay? Northwind might pay in 30 days. Another customer pays upfront. A larger customer could negotiate 60 days. Once those terms sit on the account, Dynamics 365 calculates the due date automatically. Nobody has to search an email thread or guess whether net 30 means from the order date, delivery date, or invoice date. The system just knows. Here's the thing. The customer account also holds the usual payment method. If Northwind pays by bank transfer and another customer pays by credit card, the finance team follows the right process at payment time. They don't have to treat every customer like a one-off case. Then there's the credit limit. A credit limit is the largest amount the business is willing to let a customer owe at one time. Think of it like the reception desk in an office building. The receptionist checks whether someone is allowed on another floor, ou, not whether the visitor is nice, just whether the rules let them through. Same idea here. The credit limit gives sales and finance a clear boundary. Northwind might be a strong customer, but if they already owe a large amount, the business should pause before accepting another big order. Behind the scenes, Dynamics 365 can also use customer groups and posting profiles. Don't let those names put you off. A customer group is just a way to put similar customers together. Retail in one group, wholesale in another. That way the business can apply shared rules where it makes sense. A posting profile is an accounting rule that tells Dynamics 365 which finance accounts should record the debt when an invoice enters. You won't normally see that work as a salesperson or customer. But finance depends on it because the books need every amount in the right place. And here's the real power. The customer account connects the sales side to the finance side. A salesperson can create an order for Northwind and finance doesn't need to rebuild that information later. They see the customer, payment terms, credit position, and amount due. Everything connects automatically. That's the difference between a contact list and a customer account. A contact list helps you call someone. A customer account records the financial relationship, including the rules that control what happens when the company sells to them. So once Northwind buys something, Dynamics 365 needs to turn that sale into a proper request for payment. Two, creating the invoice, turning a sale into money owed. So what's the difference between an order and an invoice? An order says what the customer wants. An invoice says what they need to pay. Here's the thing. An invoice creates an open balance on the customer account. Once it posts, you formally build them and accounts receivable can track what's due. Let's revisit Northwind equipment. They ordered 10 pieces of equipment. Your sales team records the order, the warehouse, preps the items and you ship them. Northwind now has the gear. At that point, you need a clear record of what they bought, how much it costs, and when payment is due. That record is the customer invoice. Most invoices in Dynamics 365 Finance come directly from a sales order. This keeps the invoice tied to the original sale. The customer items, prices, quantities, and all the agreed rules are already on file. You don't need someone to retype those details into a separate billing system. Once the goods ship or a service reaches a milestone where it should be built, you create the invoice from that sales order. The exact timing depends on how your company works. Some companies build when they ship, others after a stage of work finishes, a consulting firm might invoice after completing a milestone. Dynamics 365 follows the process you've already set up. You might hear the term packing slip invoice. A packing slip confirms what physically left the warehouse and reached the delivery stage. When your company builds based on what actually shipped, the invoice can use those confirmed delivery details. This avoids a common problem. Say in order for 10 units, but only 8 shipped today because two are still waiting for stock. If you build from the packing slip, you invoice only the eight units that shipped. You're not charging Northwind for all 10 before they receive them. The order still matters, but the confirmed delivery tells billing what belongs on this invoice. But not every invoice starts with a sales order. Sometimes you need to build for a one-off charge that doesn't involve shipping. Maybe Northwind asks for a special training session. Maybe there's a service fee, a project charge, or a correction that needs its own invoice. For those cases, Dynamics 365 finance supports a free text invoice. Free text doesn't mean random or informal. It means the invoice isn't linked to a sales order. You enter the customer, the charge, the amount, tax details where needed, and the payment information. Once posted, it becomes a normal amount due on the customer account. The customer still gets a proper invoice. Finance still sees an open balance. What about recurring work? Suppose Northwind pays a monthly fee for equipment maintenance. Creating the same invoice by hand every month waste time and invites small mistakes. Subscription billing uses billing schedules to handle repeat charges. You set up the agreement and the billing timing. Then Dynamics 365 can create invoices as each billing period arrives. That gives you a repeatable way to build recurring services. And the customer gets invoices based on the schedule they agreed to. Posting is the moment that changes the sales status. It records the amount on Northwind's customer account as money owed. It also sends the amount into the company's finance records where you can see that a sale has been built and payment is still outstanding. The invoice is no longer a draft. Someone might change casually. It's now part of the financial record. Let's make it concrete. Northwind orders equipment worth $10,000. Eight units shipped first, so you post an invoice for those eight units. The invoice shows the amount, the due date, and the payment instructions. Northwind receives the bill and Dynamics 365 records the same amount as open on their account that shared record keeps sales, warehouse staff, and finance focused on the same transaction. No more arguing over different versions in different files, but an invoice only asks for money. The next job is recognizing the payment when it arrives and linking it to the right open balance. It's the boss to three, receiving and matching payments, closing the right invoice. A payment arriving sound simple. The bank balance goes up so the job is done, right? Not quite. Finance still needs to answer two questions. Who sent the money and which open invoice or invoices should that money close? Think about Northwind paying the equipment invoice. The bank might show a payment with a short reference, an amount, and a date. Without matching that payment to Northwind's open balance, the system could show cash in the bank while also showing that Northwind still owes the money. Those records need to meet. Dynamics 365. Finance handles several ways customers can pay. You might receive cash, checks, credit card payments, bank transfers, or bills of exchange, or formal payment documents used in some business processes. Each method follows its own route into the finance records. A bank transfer may appear in a bank statement, a check might need recording before the bank clears it. A card payment can come through a payment service. Dynamics 365 gives finance a place to record payment details against the right customer account. That places often the customer payment journal. The journal sounds like a paper ledger, but inside Dynamics 365, it's simply a controlled place to enter and review payments before they post. Finance records the customer, the amount, the payment method, the bank account, and any reference that came with the payment, then there's a word that often sounds more difficult than it is. Settlement. Settlement means matching a payment to the invoice it pays. Northwind pays the exact amount on its equipment invoice. Finance selects the payment and the open invoice, then settles them together. Once posted, the invoice no longer appears as unpaid. The payment has closed it. The customer balance drops by the same amount. This matters because a payment without settlement can leave an open invoice sitting on the account, even though you already received the cash. That creates bad reports, unnecessary follow-up, and awkward calls to customers who already paid. Sometimes the payment doesn't cover the whole invoice. Maybe Northwind pays part of the amount now and agrees to pay the rest later. Dynamics 365 can settle the amount that arrived against the invoice while keeping the unpaid part open. The invoice doesn't vanish just because some money came in. Finance can see exactly what remains, that's far better than marking an invoice as fully paid by mistake, then trying to remember the missing amount in a note or a separate spreadsheet. For many businesses, bank payments arrive in large numbers. Manually looking through every transfer and every open invoice takes time, especially when customers pay several invoices together or type a reference that isn't perfectly clear. Dynamics 365 has a payment reconciliation journal for this work. A team can import bank statement information and use it to match incoming bank payments with open customer invoices. Payment references, amounts, customer details, and matching rules help the system suggest where the payment belongs. You still review the result, that part is important. Automation reduces the searching, but finance remains responsible for making sure a payment settles the correct invoice. If a customer sends one payment for several invoices, the person processing it can match that payment across those invoices. If a reference points to the wrong document, they can correct it before posting. The aim is not to remove human judgment. It's to stop people from spending their day hunting through bank files and invoices lists. Now imagine Northwind operates across several companies in the same business group. One legal entity might sell the equipment while a central finance company receives payments for the whole group. Dynamics 365 supports centralized payments for that situation. A payment can be recorded in one legal entity on behalf of another. The business doesn't need to pretend the money arrived in the selling company first or manage the process outside the system. The records can show where the payment came in and which customer debt it settles. That keeps shared finance work cleaner, especially when several companies use one central cash team. So the full payment process is more than recording money at the bank. Dynamics 365 links the customer, the payment, and the invoice until the open balance closes or until the remaining amount tells finance that more payment is due. That settles today's payment. The next question comes before the next sale. Should the business allow a customer to owe even more? Four, credit management, deciding when to keep selling. So you receive a payment and it clears an old balance. Pretty straightforward, right? But here's what credit management asks before the next order moves forward. How much more risk is your business willing to take? Think of a hotel front desk. A guest wants to stay another night, so the staff checks the booking, the payment status, and the rules before handing over a new room card. That's exactly what credit management does for a sales order. It doesn't judge whether Northwind equipment is a good customer overall. It simply checks their current financial position against the rules your company has set. One of those rules is the credit limit. A credit limit is the maximum amount a customer can owe at any one time. So if Northwind has a limit of $50,000 and already owes $45,000, a new $20,000 order needs attention. The customer can still place the order, but your business shouldn't let that decision slip through unnoticed. Dynamics 365 can check more than one number. It looks at open invoices, how long any are overdue, the value of the new sales order, and the credit is still available to that customer. A customer who pays on time may have room for more credit, while another customer may sit below their limit but have an invoice that's seriously late, those are different risks. When a rule triggers, Dynamics 365 can place the sales order on credit hold, pausing the order before you ship more goods or take on more unpaid work. Sales can see the hold, finance can see the reason, and nobody discovers the problem after the warehouse has already shipped another delivery. A credit hold doesn't mean the order has been rejected forever. It means someone needs to review it. The Northwind sent proof that payment is on the way, or a finance manager knows the overdue invoice is tied to a billing mistake, or the customer has asked for a temporary increase because of a large approved project. Authorised staff can release an order when there is a sound reason. That part matters because business rules need room for real life. The system can stop an automatic decision, but the people responsible still decide what happens next and leave a clear trail of that decision. This is where sales and finance need to work from the same picture. Sales wants to keep a customer moving, especially when the order matters, while finance needs to protect the company from building a balance that may never come back. Neither side needs to win an argument. They just need the order, the unpaid amount, and the credit rules all in one place. Many people hear credit management and assume it means turning customers away. It doesn't. It means agreeing on safe boundaries before a late payment becomes a much larger problem. You can still support good customers, approve exceptions, and sell with confidence. You just stop adding debt without checking the facts first. Once an invoice passes its due date, prevention gives way to follow up. 5. Collections and disputes, chasing payment without losing the customer. Once a due date passes, the job changes. The business no longer decides whether to extend credit. It needs a clear, respectful way to ask for money that is already due. Dynamics 365 Finance brings that work into the collections page. Think of it as a shared work desk for overdue customer accounts. Instead of one person keeping notes in email, another tracking calls in a spreadsheet, and someone else checking invoices in finance, the collection team sees the customer balance and all follow up activity in one place. That changes the conversation. A collections agent works from customer lists created through collection criteria, which might find customers with invoices overdue by a certain number of days, above a chosen overdue amount, or needing attention under your company's own collection rules. So the team doesn't need to guess who to contact first. For each customer, the agent can take action. Send a reminder, create a collection letter, email the customer, or add a task for a phone call. The aim isn't to send angry messages. Most late payments start with something ordinary. "Ow!" An invoice reaching the wrong inbox, a customer needing a copy or their payment team missing the due date. A calm reminder can solve a lot. Sometimes a customer replies with a promise to pay next Friday. Dynamics 365 can record that as a promise to pay, so the team knows a commitment exists and can check whether the payment arrives when promised. Without that record, the next agent might call the same customer the next morning. Unaware that someone already agreed a date, disputes need the same kind of care, a dispute means the customer challenges all or part of an invoice. Maybe because the price is wrong, some goods never arrived, or the invoice refers to work they didn't approve. The worst response is letting that issue disappear inside an inbox. Dynamics 365 can flag the invoice as disputed and keep it visible during collection work. The team can track the status and the work needed to resolve it instead of treating silence as a reason to keep sending the same reminder, that also helps the business spot repeat problems. If several customers dispute the same type of charge, finance has learned something beyond one-late payment. Billing, sales, delivery or customer service may need to fix the process creating those disputes. Collections also uses aging reports, which sort unpaid amounts by how long they have remained open. You might look at amounts due now, then overdue by 30, 60 or 90 days. Those timebans help the team see which debts need attention before they turn into a much harder conversation. An invoice that is two days late doesn't always deserve the same response as one that has sat unpaid for three months. Finance can also use payment predictions, where available, to estimate whether open invoices are likely to arrive on time, late or very late based on past invoice, payment and customer data. An aging report shows what has already happened, but a prediction helps the team decide where to focus before the next late payment creates a problem. That doesn't replace judgment. It gives the collection team another signal when they need to choose between a long list of accounts. The goal is simple. Collect money in a steady, visible way while treating the customer like a customer rather than a case number. Now, let's put the whole journey into one simple example. Six, one invoice, one connected process, the big picture. So let's walk through what happens when Northwind places in order AU, your system processes it, and once it hits the agreed billing point, an invoice goes out. The customer account already holds their payment terms, so Dynamics 365 calculates the due date automatically from the rules you agreed with Northwind. Finance sees the open amount, and the customer gets a clear request for payment. That's the start of the process. A few weeks later, Northwind sends a bank payment with the invoice reference. Finance matches the payment to the invoice, then settles it. The open balance closes, and the customer account now shows that part of the relationship is complete. No manual cross checking needed, but what happens when things go differently if Northwind misses the due date, the invoice lands in collections. An agent sends a reminder, Northwind replies that part of the charge is wrong, and the team records a dispute instead of treating it as an unexplained late payment. Everyone sees the same status and knows the next action because everything lives in one place. Here's the difference with Dynamics 365 finance, or nothing stays separate. Sales orders, customer records, invoices, payments, credit checks, and collection work all tie back to the same customer relationship, so you don't have to chase information across systems. That means faster decisions and fewer mistakes. The old ways scattered the story across spreadsheets, email folders, paper notes, and bank files, and people waste time asking which version is right. Dynamics 365 keeps the story connected. One view of the customer end to end. Accounts receivable means knowing who owes you money when it's due, what's happened so far, and what you need to do next. If any piece is missing, a company can sell a lot and still struggle to know where it's cash is. That's why this connected process matters. Conclusion. Keep the money inside under control. An invoice only starts the process, are you accounts? Receivable follows the money until the balance closes, or someone takes action on what's unpaid. Keeping that money inside under control is critical for business health. I'm Mirko Peters, subscribe to Microsoft Knowledge Nuggets on M365 FM, then watch the related Dynamics 365 finance episode on your screen to keep building the Play Now English picture.