A step-by-step guide to setting up Bills of Exchange in Dynamics 365 Finance

In Dynamics 365 Finance, a Bill of Exchange (BoE) is a financial document used to manage and settle accounts receivable and payable through formal, negotiable instruments. It’s commonly used in countries where BoEs are part of standard business practices (especially in parts of Europe, Asia, and the Middle East).

Setting up and managing Bills of Exchange in Dynamics 365 Finance plays a key role in optimizing collections and streamlining customer payments. With the right configurations, this feature can support more structured financial operations and improve overall control across accounts receivable.

In this blog, we’ll walk through the essential setup steps for customer Bills of Exchange in Dynamics 365 Finance, helping you lay the foundation for a smoother, more automated process.

What is a Bill of Exchange?

A Bill of Exchange (BoE) in Microsoft Dynamics 365 Finance is a negotiable financial instrument that facilitates business payment transactions. Recording, accepting, and settling BoEs within the system enables organizations to manage trade credit, automate collections, and streamline payment processing. The bill of exchange process in Dynamics 365 includes issuance, acceptance, remittance, settlement, and protest handling, ensuring efficient cash flow management and financial control.

Bills of exchange can be processed through the bank in two ways:

1. On the due date: This method, known as “remit for collection,” involves presenting the bill to the bank on the agreed-upon payment date.
2. Before the due date: Known as “remit for discount,” this method allows the bill to be drawn on the discount date outlined in the customer’s payment terms. In this case, the discount amount is recorded as an expense, while the remaining amount is treated as a liability until the bank receives the customer’s payment.

How do you set up a bill of exchange?

Setting up Bills of Exchange allows organizations to handle customer and vendor settlements efficiently, especially in regions where BoEs are a common practice. Below is a step-by-step guide to configuring Bills of Exchange in Dynamics 365 Finance.

Step 1: Set up posting profiles of the Bill of Exchange.

First, we will set up the Bill of Exchange posting profiles. For this, use the customer posting profiles page to set up the posting profiles that can be used with Draw, Remit, Protest, Redraw, and Settle the Bill of Exchange.

Navigate to Accounts Receivables >> Setup >> Customer Posting Profiles.

• Summary account field: Select the account where the Bill of Exchange process amounts will be posted. This account is either debited or credited based on the type of bill of exchange transaction.
• Drawing bills of exchange: For drawing bills of exchange, the account is debited when a bill is posted and credited during a remittance for discount or collection.
• Protest bills of exchange: For protest bills of exchange, the account is debited when a protest bill is posted.
• Remittance for collection: For remittances for collection, the account is debited when the remittance is posted. For remittances for discount, the account is debited when the remittance is posted.
• Settle account field: Specify the cash account where the process of bill of exchange amounts is posted upon settlement. This account is debited when a bill of exchange is settled.
• Sales tax prepayments field: Select the summary account to post sales tax amounts related to prepayments made via bills of exchange.
• Liabilities for discount account field: Define the account to post discount amounts for remittances. This account is credited when a discount remittance is posted.

Step 2: Set up accounts receivable parameters for the Bill of Exchange

In the Accounts receivable parameters page, default posting profiles for bills of exchange are specified under the Ledger and sales tax tab. At the same time, number sequences are configured on the Number Sequences tab.

Navigate to Modules >> Accounts Receivable >> Setup >>Accounts Receivable Parameters.

In the Ledger and Sales Tax, go to >> Bill of Exchange >> Define the default posting profiles.

Step 3: Set up journal names for the Bill of Exchange

After the Posting Profiles are set up, we will set up the journal names for the bills of exchange.

To set up the journal names for the bills of exchange, navigate to Modules >> General Ledger >> Journal Setup >> Journal Names.

Create at least five journal names on the Journal Names page specifically for bills of exchange. Assign the following journal types:

1. Customer draws a bill of exchange: Define a journal name for the Draw bill of exchange journal.
2. Customer protest bill of exchange: Define a journal name for the Protest bill of exchange journal.
3. Customers redraw bill of exchange: Define a journal name for the Redraw bill of exchange journal.
4. Customer bank remittance: Define the journal’s name for the remittance journal.
5. Customer settles bill of exchange: Define a journal name for the bill of exchange process journal.

Provide the necessary details under each exchange journal’s Bill of Exchange tab on the Journal voucher page.

Step 4: Set up the method of payment for the Bill of Exchange

After the journal names are set up, we will also define at least one payment method for bills of exchange. To set up the payment method, navigate to Modules >> Accounts Receivable >> Payment Setup >> Method of Payment.

Select the payment status. If it is approved, it must be approved in the journal; otherwise, the system will not allow it to be posted. Similarly, in the payment type, select the bill of exchange.

In the file format, we need to select the export format configuration that will be used to generate the remittance file when the bill of exchange is remitted.

In the invoice update, creating and posting the journal automatically if marked as “YES” will automatically generate and post the bill of exchange journal when the invoice against the customer is posted, given that the customer’s payment method is Bill of Exchange.

We can also specify the payment fee for the exchange bills. A payment fee is a charge incurred when collecting payments from customers. Each payment fee can have multiple setup lines, which help define how the default amounts are calculated. For example, setup lines can be configured for specific payment methods, specifications, currencies, or periods.

Additionally, setup lines can be based on percentages or fixed amounts determined by day intervals. For instance, an interest percentage can be applied depending on the duration a payment is overdue.

Suppose a bank applies varying fees for different remittance types, such as Collection or Discount. You can create a separate payment fee line for each remittance type to ensure accurate fee allocation.

What is the logical process flow of a Bill of Exchange?

The process of a Bill of Exchange is as follows:

1. Draw the Bill of Exchange: The initial step involves the vendor drafting and obtaining the customer’s approval.
2. Remit the Bill of Exchange: Once the customer approves the bill of exchange, the vendor forwards it to the bank, either for collection on the due date or to obtain the funds before the due date as part of the discount process.
3. Settle the Bill of Exchange: This is the third step, where the bill of exchange is settled with the bank to receive funds.
4. Protest the Bill of Exchange: This step entails a formal declaration confirming that the bill of exchange has been dishonored, serving as documented evidence of nonpayment. Understanding the Draw Bill of Exchange feature in Dynamics 365.

Understanding the draw Bill of Exchange feature in Dynamics 365

Before drawing the bill of exchange, we will navigate to the customer’s balance to see the credit limit and the credit remaining for the customer.

Navigate to Modules > Accounts Receivable > Customers > All Customers.

Select the relevant customer and click on Balance.

There, the credit limit and credit remaining will be shown.

Draw the Bill of Exchange

The bill of exchange can only be drawn against the invoices in Dynamics 365 Finance and Operations. If the invoice is not selected, the system will not allow the bill of exchange and throw an error.

To draw the bill of exchange, navigate to Module > Accounts Receivable > Payments > Bill of Exchange > Draw Bill of Exchange.

Click on New to create a new journal.

Go to the Bill of Exchange tab and enter the bank account from which the bill of exchange will be drawn.

After selecting the bank account, click on the lines to enter the details of the bill of exchange.

Select the customer account.

Similarly, select the method of payment.

Till now, we have not selected any invoice. If we try to post or generate the payment, the system will not create the payment/post the journal. The system will throw the following error:

Now, we will click on Settle transactions to select the invoice against which the bill of exchange will be drawn.

Select the relevant invoice and click OK.

After selecting the invoice, click on Generate Payment and choose the method of payment and the bank account from which the bill of exchange will be drawn. This drawn bill of exchange will be sent to the customer for approval. The purpose of generating payment here is to create the file that will be sent for approval.

Select the relevant Method of payment and Bank Account, and click OK.

The system will show a print preview of the file.

After approval, click on the payment status, change it to approved, and enter the agreed date.

Enter the approval date.

After approval, click the Post Button to post the Bill of Exchange.

Click on Voucher to see the voucher transactions of the post-drawn bill of exchange.

The voucher details will be shown.

After the journal is posted, we can navigate to the customer’s balance to see the impact on the customer’s credit limit and remaining credit. The system will not update the credit limit or remaining credit at the drawing stage.

Similarly, we can navigate to the customer transactions to see the impact of the posted drawn bill of exchange. The system will throw two lines in the customer transaction. One shows the debit, and the other shows the credit with the status of Drawn.

We can click on the Bill ID to see the Drawn Bill of Exchange.

Click on the ID to see the Inquiry of the Bill of Exchange.

The system will show all the details, such as drawn, remitted, settled, etc., on the lines.

Similarly, we can navigate to Accounts Receivable > Inquiries and Report > Payments > Bill of Exchange Journal to see the inquiry.

We can filter the exchange bills based on status as well.

We can also see the voucher or the customer transactions against the drawn bill of exchange by clicking on Inquiries under the Lines.

We can also see the statistics of the bills of exchange against the customer. To do so, navigate to the respective customer and click on Bill of Exchange Statistics under the Invoice Tab.

All the statistics will be shown there.

Click on Origin to see the details.

There, the origin will be shown.

Similarly, the exchange bills can be seen in the bank account. To do so, navigate to Cash and Bank Management > Bank Accounts > Select the relevant bank account.

Under the Manage Payments > Related Information > Bill of Exchange.

There, the details can be seen.

We can also cancel the Drawn Bill of Exchange. If we must cancel it, navigate to Modules > Accounts Receivable > Inquiries and Reports > Payments > Bill of Exchange Journal.

Select the relevant Drawn Bill of Exchange and Click On Cancel.

Provide the reason for the cancellation.

After cancellation, the bill of exchange will be removed from the Bill of Exchange Inquiry. Now, to see the cancelled bill of exchange, navigate to Cash and Bank Management > Bank Accounts > Bank Accounts > Select the relevant bank account > Manage Payments > Related Information > Bill of Exchange.

There, the cancelled Bill of Exchange can be viewed.

Click on Voucher to see the voucher details.

There, the cancelled bill of exchange can be viewed.

Remit the Bill of Exchange

If the bill of exchange is not cancelled after it is drawn, the next step is to create the remittance journal, i.e., send the bill of exchange to the bank for collection or discount on the due date.

Navigate to Modules > Accounts Receivable > Payments > Bill of Exchange > Remittance Journal.

Click on New to create the new journal.

Click the Bills of exchange fast tab and select the remittance type and bank account.

Go to the lines and enter the customer details.

Click on settle transactions and select the drawn bill of exchange. Click on settle transactions and select the drawn bill of exchange.

Click on Generate Remittance to generate the file.

After the files are generated, click the post button to post the remittance journal in the system.

After posting the journal, click on the voucher to see the transaction details.

There, the voucher details are shown.

After the journal is posted, we can navigate to the customer’s balance to see the impact on the customer’s credit limit and credit remaining. The system will not update the credit limit or credit remaining at the remittance stage.

Similarly, we can navigate to the customer transactions to see the impact of the posted remittance bill of exchange. The system will throw two lines in the customer transaction. One shows the debit, and the other shows the credit with the status remitted.

We can click on the Bill ID to see the Drawn Bill of Exchange.

Click on the ID to see the Inquiry of the Bill of Exchange.

The system will show all the details, such as drawn, remitted, settled, etc., on the lines.

Similarly, we can navigate to Accounts Receivable > Inquiries and Report > Payments > Bill of Exchange Journal to see the inquiry.

We can filter the exchange bills based on status as well.

We can also see the voucher or the customer transactions against the drawn bill of exchange by clicking on Inquiries under the Lines.

We can also see the statistics of the bills of exchange against the customer. To do so, navigate to the respective customer and click on Bill of Exchange Statistics under the Invoice Tab.

All the statistics will be shown there.

Click on Origin to see the details.

There, the origin will be shown.

Similarly, the exchange bills can be seen in the bank account. To do so, navigate to Cash and Bank Management > Bank Accounts >> Select the relevant bank account.

Under the Manage Payments > Statistics > Bill of Exchange.

There, the details can be seen.

Honour the Bill of Exchange

After the bill of exchange is remitted, the next thing is that either the bill of exchange will be honored or dishonored. If the bill of exchange is honored:

Navigate to Modules > Accounts Receivable > Payments > Bill of Exchange > Settle Bill of Exchange Journal.

Click on New and select the journal name.

Click on the bill of exchange fast tab, select the bank account, and type.

Go to the lines and enter the customer details.

Click on settle transactions and select the remitted bill of exchange.

Click on the Post button to post the journal.

Click on Voucher to see the details of the transactions.

After the journal is posted, we can navigate to the customer’s balance to see the impact on the customer’s credit limit and credit remaining. The system will not update the credit limit or credit remaining at the remittance stage.

Similarly, we can navigate to the customer transactions to see the impact of the settled bill of exchange. The system will throw one line in the customer transaction showing the settled bill of exchange.

We can click on Bill ID to see the Settled Bill of Exchange.

Click on the ID to see the Inquiry of the Bill of Exchange.

The system will show all the details on the lines, such as drawn, remitted, settled, etc..

Similarly, we can navigate to Accounts Receivable > Inquiries and Report > Payments > Bill of Exchange Journal to see the inquiry.

We can filter the exchange bills based on status as well.

We can also see the voucher or the customer transactions against the drawn bill of exchange by clicking on Inquiries under the Lines.

The Statistics feature is a valuable resource for tracking the performance of bills of exchange against a specific customer. To access it, navigate to the respective customer and click ‘Bill of Exchange Statistics’ under the ‘Invoice Tab.’

All the statistics will be shown there.

Click on Origin to see the details.

There, the origin will be shown.

Similarly, viewing bills of exchange on a bank account is straightforward. Navigate to Cash and Bank Management > Bank Accounts >> Select the relevant bank account. It’s that simple.

Under the Manage Payments > Statistics > Bill of Exchange.

Rest assured, all the necessary details can be seen here.

When a bill of exchange is complete and there are no issues, we can signify its completion by marking it as ‘closed’ from the bill of exchange inquiry.

Select the relevant and click on Close.

Mark the flag as “Yes” and click OK.

Note: Once the bill of exchange is closed, we cannot protest it.

Protest the honored Bill of Exchange

If the bill of exchange is honored, but for any reason, we need to protest it. To do so, Navigate to Modules > Accounts Receivable > Payments > Bill of Exchange > Protest Bill of Exchange.

Click on New and select the journal name.

Select the bank account in the bill of exchange fast tab and mark the protest settlement flag as “Yes.”

Go to the lines and enter the customer’s details.

Click on select settled bills of exchange, choose the honored bill of exchange.

Click on the Post button to post the journal.

Click on the voucher to see its details.

The details can also be shown in the inquiry for the bill of exchange.

There, the status will be changed to protested.

Click on close to close the bill of exchange.

After closing, we can also check the bill of exchange statistics on the customer form.

Note: If the bill of exchange is not honored and we have an issue with it after it is remitted, we will have to protest the remitted bill of exchange and then redraw the bill of exchange. Similarly, if the bill of exchange is honored and we need to protest it as open payment, we will again redraw the bill of exchange.

Conclusion

Implementing Bills of Exchange in Dynamics 365 Finance & Operations can significantly enhance your organization’s financial efficiency and control. By understanding and configuring the necessary components, businesses can ensure smoother transactions and better cash flow management.

At Confiz, we specialize in optimizing Dynamics 365 to meet your unique business needs. Our team of experts is ready to assist you in leveraging D365’s financial capabilities to their full potential.

Ready to transform your financial processes? Contact us at marketing@confiz.com to learn how we can help you implement and optimize Bills of Exchange.