Netting APAR Whitepaper

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AP/AR Netting – A Technical Insight

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ORACLE APPLICATIONS

WHITE PAPER AP/AR NETTING –

A TECHNICAL INSIGHT

AUGUST 2008

Contributor: Shanmuga Senapathy, AP Support




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Contents

Introduction 3Objective 3

Scope 3

Background 2

What is AP/AR Netting? 4

How it worked before R12? 5 How does it work in R12? 6 What are the Setup Steps involved? 7

How Netting batches are created? 9

What happens when we submit a Netting Batch? 12 How Netting Batches are settled? 13

What are various Netting Batch Statuses? 15What are the tables involved? 16

How these tables are linked? 17

Summary 18 Information Source 18




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Introduction

Objective

To provide a technical insight into Oracle AP/AR Netting

with hopes of giving the reader a good understanding of the

different setups involved.

Scope

Even though this paper is written to cover the technical

aspects of Netting, it will also provide a functional insight of this functionality. This paper is written with the intention of

helping implementers and those supporting the application tounder how Netting works.

Background

The Oracle AP/AR Netting is a feature that provides a

foundation to create netting agreements with flexibledefinition of business rules and association of trading

partners. It executes an automated netting process so thatcustomers can reduce their debt obligations without incurring

bank charges by creating unnecessary payments and receipts.




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What is AP/AR Netting?

Oracle AP/AR Netting allows you to net your Payablesinvoice balances against your Receivables invoice balances

for those Customers who are also your Suppliers. For

example, If you have a customer who is also your supplier,

then rather than him paying you and then you paying him,

AP/AR netting allows you to pay the net difference betweenhow much you owe the supplier and how much he owes you.

After establishing a netting agreement with such trading

partners, you set up the agreement and the rules associatedwith it in eBusiness Suite and you can then start to net AP and

AR transactions.

Below is a conceptual diagram of how this works.




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How it worked before R12?

Prior to Release 12, there were several netting solutions in theeBusiness Suite:

Contra-Charging

This Globalization feature was originally a solution for Germany in Release 11, but then it became a RegionalGlobalization feature in Release 11i.

US Federal Financials Netting

This solution specifically addresses the needs of USrequirements.

In Release 12, AP/AP Netting has become "core"functionality and is the only netting solution available, which

means Contra-Charging and US Federal Financials Netting

are all replaced by this solution. Each of those features has amigration path to the Release 12 Netting feature.




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How does it work in R12?

Here is the conceptual diagram behind the Netting Engine.

We will be discussing in depth as you scroll down. I also

recommend that you walk through the additional simulationsheet, which is attached to this white paper.




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What are the Setup Steps involved?

In Brief

• Netting Bank Account

• Receivables System Options

• Netting batch approver

• Chargeable Subcontracting

• Netting Agreement

In Detail

• Netting Bank Account

Create a Bank Account, which can be used by thenetting process. Set the Netting Account flag to yes.

Assign this bank account to the seeded Receivablesreceipt class “AP/AR Netting”

• Receivables System Options

Check the “Allow payment of unrelated transactions”checkbox under the Receivables system options, if you

want to create netting agreements across multipleunrelated customers.

• Netting batch approver

If approval is required for a netting agreement, the

approver must be set up as a contact for the trading partner (Customer / Supplier). The contact must be

setup with an email address.




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• Chargeable Subcontracting

When the Profile option “Chargeable Subcontracting

Enabled” is set to:

Yes – This will select invoices that were matched to purchase orders with outsourced assemblies by the

netting process. No – This will select invoices that were matched to

purchase orders without outsourced assemblies by thenetting process.

D (disregard) – This means all eligible invoices will beselected for netting irrespective of whether or not they

are matched to purchase orders.

• Netting Agreement

Create netting agreement to setup the rules that willdecide which transactions are selected for netting and

how they are ordered and processed once selected.

Note: -

The complete setup steps, including screenshots can be found

in the attached simulation sheet.




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How Netting batches are created?

Let’s have a look at how Netting batches are created. Thefollowing diagram will depict how invoices are ordered and

selected for creating a netting batch.

In the following sections, we will discuss what criteria areused for selecting AP Invoices and AR Transactions, and how

they are ordered for netting.




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Criteria used for Selecting AP Invoices:

• Transaction due date must be less than or equal to AP

scheduled payment due date.• AP scheduled payment due date must be between the

Netting Agreement Start Date and End Date.

• Only invoices for the Supplier and supplier sites (if

specified) in the agreement are selected.

• Only invoices with the selected invoice types in the

agreement are included.

• Operating unit of the invoices must be the same as the

operating unit of the batch.

• Invoices must be approved

• Invoices must not be on Hold

• Invoices that have already been included in a batch that is

not yet in status ‘Complete’ are not included.

• Locking AP invoices:

o Selected AP invoices are locked by populatingAP_PAYMENT_SCHEDULES.Checkrun_id Column

for the selected invoices

o The same Checkrun_id value is populated in

FUN_NET_BATCHES.Checkrun_Id for the given

batch

Criteria used for Selecting AR Transactions:

• AR Payment Schedule due date must be less than or equal

to transaction date mentioned in Netting.

• AR payment schedule date should be between the

Agreement Start Date and end date.

• Transactions must be complete

•

Only Transactions for customer and customer sites (if specified) in the agreement are selected.

• Only transactions with the selected transaction types in the

agreement are included.

• Operating unit of the transactions must be the same as theoperating unit of the batch.




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• Transactions that have already been included in a batch

that is not yet in status complete will not be included in the

new batch.

• The Receipt method associated with the transaction should

not have a Payment_type_code = ‘CREDIT_CARD’• Transaction must not be in dispute

• Payment schedule status must be open

• Transaction must not be a prepayment

(RA_CUSTOMER_TRX.PREPAYMENT_FLAG = ‘N’)

Criteria used for ordering the transactions:

• Invoices and transactions are first ordered by Supplier and

Customer priority associated in the agreement.• They are then ordered by Netting order rule selected in the

agreement.

• The priority is important as this determines whichtransaction/invoice will be netted first.




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What happens when we submit a Netting Batch?

The following validations are performed when a netting batchis submitted, as there might be a time lag between when the

batch is created and when the batch is submitted. It is also

possible that the batch may have been modified.

• If the current date has passed the batch settlement date,then the batch is set to status ‘SUSPENDED’ and the

AP invoices are unlocked.

• AP and AR balances for transactions are validatedagain. If the validation fails then the batch is set to

status ‘ERROR’ and the AP invoices are unlocked.

• If the batch has passed all validations, it is sent for

approval, if approval is required, else the settle Netting batch process is initiated.




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How Netting Batches are settled?

• Validation

o The process starts off with the validation of AR transactions. This is necessary as the AR

transactions are not locked when the netting batch is

created and therefore there is a possibility that theAR transaction may have been modified since it was

included in the netting batcho If any validations fail, the batch is set to Cancelled

Status.o Validations are also performed to check whether the

GL, AR, and AP periods are open for the batchsettlement date. If not, then the batch is set to status

‘ERROR’ and an error message is displayed in the

Report log.

• Derive Netting Bank Details

o Netting bank details like bank account name, bank

account owner and number are derived based on theFUN_AGREEMENTS.bank_account_id for the

given batch.




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• Settle AP invoices

o Invoices in each batch are grouped by vendor,

vendor site and invoice currency code.o AP payment APIs are called to process the

payments. These APIs return the check id which isupdated in FUN_NET_AP_INVS_ALL.Check_ID

• Settle AR transactions

o AR receipt APIs are called to create and apply the

receipts. These APIs return the receipt id which isupdated in FUN_NET_AR_TXNS.RECEIPT_ID

o If all processing goes through successfully then the batch is set to COMPLETE and the AP invoices and

netting agreements are unlocked.




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What are various Netting Batch Statuses?

Netting Batch

Status

Event

RUNNING User creates the netting batch

SELECTED Review Batch option is set to YESERROR Error encountered while validating or selecting

transactions

SUSPENDED Current date has gone passed the batch settlement

dateCLEARING Review batch option is set to NO but no approval is

required.SUBMITTED Review batch option is set to NO and approval is

required.

REJECTED Batch has been reversedAPPROVED User approves batch requiring approval

COMPLETE Netting process completed for transactionsREVERSING User chooses to reverse the batch

REVERSED Batch has been reversed




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What tables are involved?

AP/AR Netting engine is owned by ‘Oracle Financials

Common Modules’ (FUN) Product. All tables behind thescene will be stored under the FUN schema.

Information related to Netting is stored in the followingtables:

Table Name Table Purpose

FUN_NET_AR_TRX_TYPES_ALL Netting Agreement – Transactiontypes of AR

FUN_NET_AP_INV_TYPES_ALL Netting Agreement – Transactiontypes of AP

FUN_NET_AGREEMENTS_ALL Netting Agreement – DetailsFUN_NET_SUPPLIERS_ALL Netting Agreement – Supplier

Details

FUN_NET_CUSTOMERS_ALL Netting Agreement – Customer Details

FUN_NET_BATCHES_ALL Netting Batch – DetailsFUN_NET_AR_TXNS_ALL Netting Batch – Details of AR

transactions

FUN_NET_AP_INVS_AL Netting Batch – Details of AP

invoices




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How these tables are linked?

Here is the Entity Relationship Diagram (ERD) for AP/AR Netting..




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Summary

The Oracle AP/AR Netting feature provides a foundation tocreate netting agreements with flexible definition of business

rules and association of trading partners. It executes an

automated netting process so that customers can reduce their

debt obligations without incurring bank charges by creating

unnecessary payments and receipts.

Information Source

Oracle® Payables

User's Guide

Release 12

Part No. B25454-03

AP/AR Netting – A Technical InsightAugust 2008Contributor: Shanmuga Senapathy

Oracle CorporationWorld Headquarters500 Oracle ParkwayRedwood Shores, CA 94065U.S.A.Worldwide Inquiries:Phone: +1.650.506.7000Fax: +1.650.506.7200www.oracle.com

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