In this article by Anju Bala, the author of the book Microsoft Dynamics NAV 2016 Financial Management - Second Edition, we will see the sales and purchase process using Microsoft Dynamics NAV 2016 in detail.

Sales and purchases are two essential business areas in all companies. In many organizations, the salesperson or the purchase department are the ones responsible for generating quotes and orders. People from the finance area are the ones in charge of finalizing the sales and purchase processes by issuing the documents that have an accountant reflection: invoices and credit memos.

In the past, most systems required someone to translate all the transactions to accountancy language, so they needed a financer to do the job. In Dynamics NAV, anyone can issue an invoice, with zero accountant knowledge needed. But a lot of companies keep their old division of labor between departments. This is why we have decided to explain the sales and purchase processes in this book.

This article explains how their workflows are managed in Dynamics NAV. In this article you will learn:

• What is Dynamics NAV and what it can offer to your company
• To define the master data needed to sell and purchase
• How to set up your pricing policies

(For more resources related to this topic, see here.)

Introducing Microsoft Dynamics NAV

Dynamics NAV is an Enterprise Resource Planning (ERP) system targeted at small and medium-sized companies.

An ERP is a system, a software, which integrates the internal and external management information across an entire organization. The purpose of an ERP is to facilitate the flow of information between all business functions inside the boundaries of the organizations. An ERP system is meant to handle all the organization areas on a single software system. This way the output of an area can be used as an input of another area.

Dynamics NAV 2016 covers the following functional areas:

• Financial Management: It includes accounting, G/L budgets, account schedules, financial reporting, cash management, receivables and payables, fixed assets, VAT reporting, intercompany transactions, cost accounting, consolidation, multicurrency, and Intrastat.
• Sales and Marketing: This area covers customers, order processing, pricing, contacts, marketing campaigns, and so on.
• Purchase: The purchase area includes vendors, order processing, approvals, planning, costing, and other such areas.
• Warehouse: Under the warehouse area you will find inventory, shipping and receiving, locations, picking, assembly, and so on.
• Manufacturing: This area includes product design, capacities, planning, execution, costing, subcontracting, and so on.
• Job: Within the job area you can create projects, phases and tasks, planning, time sheets, work in process, and other such areas.
• Resource Planning: Manage resources, capacity, and so on.
• Service: Within this area you can manage service items, contracts, order processing, planning and dispatching, service tasks, and so on.
• Human Resources: Manage employees, absences, and so on.

Some of these areas will be covered in detail in this book.

Dynamics NAV offers much more than robust financial and business management functionalities. It is also a perfect platform to customize the solution to truly fit your company needs. If you have studied different ERP solutions, you know by now customizations to fit your specific needs will always be necessary. Dynamics NAV has a reputation as being easy to customize, which is a distinct advantage.

Since you will probably have customizations in your system, you might find some differences with what is explained in this book. Your customizations could imply that:

• You have more functionality in your implementation
• Some steps are automated, so some manual work can be avoided
• Some features behave different than explained here
• There are new functional areas in your Dynamics NAV

In addition Dynamics NAV has around forty different country localizations that are meant to cover country-specific legal requirements or common practices.

Many people and companies have already developed solutions on top of Dynamics NAV to cover horizontal or industry-specific needs, and they have registered their solution as an add-on, such as:

• Solutions for the retail industry or the food and beverages industry
• Electronic Data Interchange (EDI)
• Quality or Maintenance management
• Integration with third-party applications such as electronic shops, data warehouse solutions, or CRM systems

Those are just a few examples. You can find almost 2,000 registered third-party solutions that cover all kinds of functional areas. If you feel that Dynamics NAV does not cover your needs and you will need too much customization, the best solution will probably be to look for an existing add-on and implement it along with your Dynamics NAV.

Anyway, with or without an add-on, we said that you will probably need customizations. How many customizations can you expect? This is hard to tell as each case is particular, but we'll try to give you some highlights.

If your ERP system covers a 100 percent of your needs without any customization, you should worry. This means that your procedures are so standard that there is no difference between you and your competence. You are not offering any special service to your customer, so they are only going to measure you by the price they are getting.

On the other hand, if your Dynamics NAV only covers a low percentage of your needs it could just mean two things: this is not the product you need; or your organization is too chaotic and you should re-think your processes to standardize them a bit.

Some people agree that the ideal scenario would be to get about 70-80 percent of your needs covered out of the box, and about 20-30 percent customizations to cover those needs that make you different from your competitors.

Importance of Financial Management

In order to use Dynamics NAV, all organizations have to use the Financial Management area. It is the epicenter of the whole application. Any other area is optional and their usage depends on the organization's needs. The sales and the purchase areas are also used in almost any Dynamics NAV implementation.

Actually, accountancy is the epicenter, and the general ledger is included inside the Financial Management area. In Dynamics NAV everything leads to accounting. It makes sense as accountancy is the act of recording, classifying, and summarizing, in terms of money, the transactions and events that take place in the company.

Every time the warehouse guy ships an item, or the payment department orders a transfer, these actions can be written in terms of money using accounts, credit, and debit amounts.

An accountant could collect all the company transactions and translate them one by one to accountancy language. But this means manual duplicate work, a lot of chances of getting errors and inconsistencies, and no real-time data.

On the other hand, Dynamics NAV is capable to interpret such transactions and translate them to accountancy on the fly. In Dynamics NAV everything leads to accountancy, so all the company's employees are helping the financial department with their job. The financers can now focus on analyzing the data and taking decisions, and they don't have to bother on entering the data anymore.

Posted data cannot be modified (or deleted)

One of the first things you will face when working with Dynamics NAV is the inability to modify what has been posted, whether it's a sales invoice, a shipment document, a general ledger entry, or any other data. Any posted document or entry is unchangeable.

This might cause frustration, especially if you are used to work with other systems that allow you to modify data. However, this feature is a great advantage since it ensures data integrity. You will never find an unbalanced transaction.

If you need to correct any data, the Dynamics NAV approach is to post new entries to null the incorrect ones, and then post the good entries again. For instance, if you have posted and invoice, and the prices were wrong, you will have to post a credit memo to null the original invoice and then issue a new invoice with the correct prices.

As you can see this method for correcting mistakes always leaves a track of what was wrong and how we solved it. Users get the feeling that they have to perform too many steps to correct the data; with the addition that everyone can see that there was a mistake at some point. Our experience tells us that users tend to pay more attention before they post anything in Dynamics NAV, which leads to make fewer mistakes on the first place.

So another great advantage of using Dynamics NAV as your ERP system is that the whole organization tends to improve their internal procedures, so no mistakes.

No save button

Dynamics NAV does not have any kind of save button anywhere in the application. Data is saved into the database while it is being introduced. When you enter data in one field, right after you leave the field, the data is already saved. There is no undo feature.

The major advantage is that you can create any card (for instance, Customer Card), any document (for instance, Sales Order), or any other kind of data without knowing all the information that is needed.

Imagine you need to create a new customer. You have all their fiscal data except their VAT Number. You could create the card, fill in all the information except the VAT Registration No. field, and leave the card without losing the rest of the information. When you have figured out the VAT Number of your customer, you can come back and fill it in. The not-losing-the-rest-of-the-information part is important.

Imagine that there actually was a Save button; you spend a few minutes filling in all the information and, at the end, click on Save. At that moment, the system carries out some checks and finds out that one field is missing. It throws you a message saying that the Customer Card cannot be saved. So you basically have two options:

• To lose the information introduced, find out the VAT number for the customer, and start all over again.
• To cheat. Fill the field with some wrong value so that the system actually lets you save the data. Of course, you can come back to the card and change the data once you've found out the right one. But nothing will prevent any other user to post a transaction with the customer in the meantime.

Understanding master data

Master data is all the key information to the operation of a business. Third-party companies, such as customers and vendors, are part of the master data. The items a company manufactures or sells are also part of the master data.

Many other things can be considered master data, such as the warehouses or locations, the resources, or the employees.

The first thing you have to do when you start using Dynamics NAV is loading your master data into the system. Later on, you will keep growing your master data by adding new customers, for instance. To do so, you need to know which kind of information you have to provide.

Customers

We will open a Customer Card to see which kind of information is stored in Dynamics NAV about customers. To open a Customer Card, follow these steps:

1. Navigate to Departments/Sales & Marketing/Sales/Customers.
2. You will see a list of customers, find No. 10000 The Cannon Group PLC.
3. Double-click on it to open its card, or select it and click on the View icon found on the Home tab of the ribbon.

The following screenshot shows the Customer Card for The Cannon Group PLC:

Customers are always referred to by their No., which is a code that identifies them. We can also provide the following information:

• Name, Address, and Contact: A Search Name can also be provided if you refer to your customer by its commercial name rather than by its fiscal name.
• Invoicing information: It includes posting groups, price and discount rates, and so on.

  You may still don't know what a posting group is, since it is the first time those words are mentioned on this book. At this moment, we can only tell you that posting groups are important. But it's not time to go through them yet. We will talk about posting groups in Chapter 6, Financial Management Setup.

• Payments information: It includes when and how will we receive payments from the customer.
• Shipping information: It explains how do we ship items to the customer.

Besides the information you see on the card, there is much other information we can introduce about customers. Take a look at the Navigate tab found on the ribbon.

Other information that can be entered is as follows:

• Information about bank accounts: so that we can know where can we request the payments. Multiple bank accounts can be setup for each customer.
• Credit card information: in case customers pay using this procedure.
• Prepayment information: in case you require your customers to pay in advance, either totally or partially.
• Additional addresses: where goods can be shipped (Ship-to Addresses).
• Contacts: You may relate to different departments or individuals from your customers.
• Relations: between our items and the customer's items (Cross References).
• Prices and Discounts: which will be discussed in the Pricing section.

But customers, just as any other master data record, do not only have information that users inform manually. They have a bunch of other information that is filled in automatically by the system as actions are performed:

• History: You can see it on the right side of the card and it holds information such as how many quotes or orders are currently being processed or how many invoices and credit memos have been issued.
• Entries: You can access the ledger entries of a customer through the Navigate tab. They hold the details of every single monetary transaction done (invoices, credit memos, payments, and so on).
• Statistics: You can see them on the right side and they hold monetary information such as the amount in orders or what is the amount of goods or services that have been shipped but not yet invoiced.
• The Balance: It is a sum of all invoices issued to the customer minus all payments received from the customer.

Not all the information we have seen on the Customer Card is mandatory. Actually, the only information that is required if you want to create a transaction is to give it a No. (its identification) and to fill in the posting group's fields (Gen. Bus. Posting Group and Customer Posting Group). All other information can be understood as default information and setup that will be used in transactions so that you don't have to write it down every single time. You don't want to write the customer's address in every single order or invoice, do you?

Items

Let's take a look now at an Item Card to see which kind of information is stored in Dynamics NAV about items. To open an Item Card, follow these steps:

1. Navigate to Departments/Sales & Marketing/Inventory & Pricing/Items.
2. You will see a list of items, find item 1000 Bicycle.
3. Double-click on it to open its card.

The following screenshot shows the item card for item 1000 Bicycle:

As you can see in the screenshot, items first have a No., which is a code that identifies them. For an item, we can enter the following information:

• Description: It's the item's description. A Search Description can also be provided if you better identify an item using a different name.
• Base Unit of Measure: It is the unit of measure in which most quantities and other information such as Unit Price for the item will be expressed. We will see later what other units of measure can be used as well, but the Base is the most important one and should be the smallest measure in which the item can be referred.
• Classification: Item Category Code and Product Group Code fields offer a hierarchical classification to group items. The classification can fill in the invoicing information we will see in the next point.
• Invoicing information: It includes posting groups, costing method used for the item, and so on. Posting groups are explained in Chapter 6, Financial Management Setup, and costing methods are explained in Chapter 3, Accounting Processes.
• Pricing information: It is the item's unit price and other pricing configuration that we will cover in more detail in the Pricing section.
• Foreign trade information: It is needed if you have to do Instrastat reporting.
• Replenishment, planning, item tracking, and warehouse information: These fast-tabs are not explained in detail because they are out of the scope of this book. They are used to determine how to store the stock and how to replenish it.

Besides the information you see on the Item Card, there is much other information we can introduce about items through the Navigate tab found on the ribbon:

As you can see, other information that can be entered is as follows:

• Units of Measure: It is useful when you can sell your item either in units, boxes, or other units of measure at the same time.
• Variants: It is useful when you have multiple items that are actually the same one (thus, they share most of the information) but with some slight differences. You can use variants to differentiate colors, sizes, or any other small difference you can think of.
• Extended texts: It is useful when you need long descriptions or technical info to be shown on documents.
• Translations: It is used so that you can show item's descriptions on other languages, depending on the language used by your customers.
• Prices and discounts: It will be discussed in the Pricing section.

As with customers, not all the information in the Item Card is mandatory.

Vendors, resources, and locations

We will start with third-parties; customers and vendors. They work exactly the same way. We will just look at customers, but everything we will explain about them can be applied to vendors as well. Then, we will look at items, and finally, we will take a brief look to locations and resources.

The concepts learned can be used in resources and locations, and also to other master data such as G/L accounts, fixed assets, employees, service items, and so on.

Pricing

Pricing is the combination of prices for items and resources and the discounts that can be applied to individual document lines or to the whole document.

Prices can be defined for items and resources and can be assigned to customers. Discounts can be defined for items and documents and can also be assigned to customers.

Both prices and discounts can be defined at different levels and can cover multiple pricing policies. The following diagram illustrates different pricing policies that can be established in Dynamics NAV:

Defining sales prices

Sales prices can be defined in different levels to target different pricing policies.

The easiest scenario is when we have a single price per item or resource. That is, the One single price for everyone policy. In that case, the sales price can be specified on the Item Card or on the Resource Card, in a field called Unit Price.

In a more complex scenario, where prices depend on different conditions, we will have to define the possible combinations and the resulting price.

We will explain how prices can be configured for items. Prices for resources can be defined in a similar way, although they offer fewer possibilities.

To define sales prices for an Item, follow these steps:

1. Navigate to Departments/Sales & Marketing/Inventory & Pricing/Items.
2. You will see a list of items, find item 1936-S BERLIN Guest Chair, yellow.
3. Double-click on it to open its card.
4. On the Navigate tab, click on the Prices icon found under the Sales group.
5. The Edit – Sales Prices page will open.

As you can see in the screenshot, multiple prices have been defined for the same item. A specific price will only be used when all the conditions are met. For example, a Unit Price will be used for any customer that buys item 1936-S after the 20/01/2017 but only if they buy a minimum of 11 units.

Different fields can be used to address each of the pricing policies:

• The combination of Sales Type and Sales Code fields enable the different prices for different customers policy
• Fields Unit of Measure Code and Minimum Quantity are used on the different prices per volume policy
• Fields Starting Date, Ending Date, and Currency Code are used on the different prices per period or currency policy

They can all be used at the same time to enable mixed policies.

When multiple pricing conditions are met, the price that is used is the one that is most favorable to the customer (the cheapest one).

Imagine Customer 10000 belongs to the RETAIL price group. On 20/01/2017 he buys 20 units of item 1936-S. There are three different prices that could be used: the one defined for him, the one defined for its price group, and the one defined to all customers when they buy at least 11 units. Among the three prices, 130.20 is the cheapest one, so this is the one that will be used.

Prices can be defined including or excluding VAT.

Defining sales discounts

Sales discounts can be defined in different levels to target different pricing policies.

We can also define item discounts based on conditions. This addresses the Discounts based on items policy and also the Discounts per volume, period or currency policy, depending on which fields are used to establish the conditions.

In the following screenshot, we can see some examples of item discounts based on conditions, which are called Line Discounts because they will be applied to individual document lines.

In some cases, items or customers may already have a very low profit for the company and we may want to prevent the usage of line discounts, even if the conditions are met.

A field called Allow Line Disc, can be found on the Customer Card and on sales prices. By unchecking it, we will prevent line discounts to be applied to a certain customer or when a specific sales price is used.

Besides the line discounts, invoice discounts can be defined to use the General discounts per customer policy. Invoice discounts apply to the whole document and they depend only on the customer.

Follow these steps to see and define invoice discounts for a specific customer:

1. Open the Customer Card for customer 10000, The Cannon Group PLC.
2. On the Navigate tab, click on Invoice Discounts.

The following screenshot shows that customer 10000 has an invoice discount of 5 percent:

Just as line discounts, invoice discounts can also be disabled using a field called Allow Invoice disc. that can be found on the Item Card and on sales prices.

There is a third kind of discount, payment discount, which can be defined to use the Financial discounts per early payments policy. This kind of discount applies to the whole document and depends on when the payment is done. Payment discounts are bound to a Payment Term and are to be applied if the payment is received within a specific number of days.

The following screenshot shows the Payment Terms that can be found by navigating to Departments/Sales & Marketing/Administration/Payment Terms:

As you can see, a 2 percent payment discount has been established when the 1M(8D) Payment Term is used and the payment is received within the first eight days.

Purchase pricing

Purchase prices and discounts can also be defined in Dynamics NAV. The way they are defined is exactly the same as you can define sales prices and discounts. There are some slight differences:

• When defining single purchase pricing on the Item Card, instead of using the Unit Price field, we will use the Last Direct Cost field. This field gets automatically updated as purchase invoices are posted.
• Purchase prices and discounts can only be defined per single vendors and not per group of vendors as we could do in sales prices and discounts.
• Purchase discounts can only be defined per single items and not per group of items as we could do in sales discounts.
• We cannot prevent purchase discounts to be applied.
• Purchase prices can only be defined excluding VAT.

Summary

In this chapter, we have learned that Dynamics NAV as an ERP system meant to handle all the organization areas on a single software system.

The sales and purchases processes can be held by anyone without the need of having accountancy knowledge, because the system is capable of translating all the transactions to accountant language on the fly.

Customers, vendors, and items are the master data of these areas. Its information is used in documents to post transactions. There are multiple options to define your pricing policy: from one single price to everyone to different prices and discounts per groups of customers, per volume, or per period or currency. You can also define financial discounts per early payment.

In the next chapter, we will learn how to manage cash by showing how to handle receivables, payables, and bank accounts.

Resources for Article:

Further resources on this subject:

• Modifying the System using Microsoft Dynamics Nav 2009: Part 3 [article]
• Introducing Dynamics CRM [article]
• Features of Dynamics GP [article]