SETUP AND USING ORACLE FINANCIALS AP / AR

NETTING FEATURE

A White Paper prepared by IT Convergence

presented at Collaborate 13.

Author

IT Convergence Consulting Services

Copyright

IT Convergence 2013

SETUP AND USING AP / AR NETTING FEATURE

TABLE OF CONTENTS
Background ................................................................................................................................................................................. 3
Overview ..................................................................................................................................................................................... 3
Setup .......................................................................................................................................................................................... 3
Setup Step 1 ...................................................................................................................................................................... 4
Setup Step 2 ...................................................................................................................................................................... 5
Setup Step 3 (optional) ...................................................................................................................................................... 7
Setup Step 4 ...................................................................................................................................................................... 7
Netting Process ........................................................................................................................................................................ 10
Netting Process Step 1 .................................................................................................................................................... 10
Accounting Entries Generated .................................................................................................................................................. 11
Setup Example ......................................................................................................................................................................... 11
References ............................................................................................................................................................................... 12

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Theres Got to Be a Better Way.

Until Release 12 the ability to Net a payables account with a receivables account was creative at best. Assume you have
a customer, TradingPartners R Us, who has two transactions totaling $150.00, which by the way are 120 days past
due! TradingPartners R Us is also a supplier to your company, and you owe them $75.00, due this month. Now I dont
know about you, but I sure dont want to be sending that money when they owe me. However, it is important that I show
that I paid them. Prior to Release 12 this could be accomplished by:

1. Create a BOGUS Bank Account with the BOGUS Bank Account asset account number posting to a clearing account.
2. In Payables, create a check using the BOGUS Bank Account to Supplier TradingPartners R Us for $75.00 This
would show the invoice paid in full.

3. In Accounts Receivable, create a receipt against the oldest transaction for $75.00 and receive the funds into the
BOGUS Bank Account.

4. The net result will show no actual money moving but the Payable has been eliminated and the receivable has been
reduced by $75.00\
The process was both cumbersome and time consuming. For years the Financials end user community collectively sighed,
Theres got to be a better way.

Oracle Financials R12 Automates AP/AR Netting

Finally, in Release 12 Oracle responded to the pleas of Accounts Payable and Accounts Receivable clerks everywhere
and ahs automated the AP/AR Netting process. This paper will guide you through the setup and use of the Netting
process.

Setup
We need to create a BOGUS bank account; now we all know auditors dont like the word BOGUS, therefore, Oracle is
going to call this a Netting Account. It is only necessary to have a single netting account. However, some customers
have found that having two netting accounts is convenient, one for intercompany netting the other for external
organizations / trading partner.

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SETUP AND USING AP / AR NETTING FEATURE

SETUP STEP 1
In Cash Management, Navigate to Banks, create Netting Bank and Bank Branch. I will use the company address for my
Netting Bank.

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SETUP AND USING AP / AR NETTING FEATURE

SETUP STEP 2
In Cash Management, Navigate to Bank Accounts, create a Netting Account for the Bank created in Step 1. The
Netting Agreement Flag must be set to Yes and the Receivables Receipt Class set to AP/AR Netting

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SETUP AND USING AP / AR NETTING FEATURE

Clearing
Account

Netting set
to Yes

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SETUP AND USING AP / AR NETTING FEATURE

SETUP STEP 3 (OPTIONAL)

Will the trading partner need to approve the proposed documents to net, prior to the actual process? If so, create a
contact for the trading partners approver. This contact must have a valid email address.

SETUP STEP 4
In Receivables, navigate to Netting Agreement. Create a Netting Agreement for every combination of supplier/customer
or trading partner you wish to net. The purpose of the Netting Agreement is to establish the rules the netting engine will
follow when selecting items to net.

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Netting Process
NETTING PROCESS STEP 1
In Receivables, submit a Netting Batch for each Netting Agreement.

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Accounting Entries Generated

Clearing
Debit

Credit

Payables
Debit

$376.25
AP/AR
Netting

$376.25
AP/AR
Netting

$376.25
AP/AR
Netting

Credit
$376.25
invoice #Test
1

Receivables
Debit
$1,000.00
Transaction
#12024

Credit

$376.25
AP/AR
Netting

Setup Example
Accounts Receivable Transaction for Advantage Corp $1000

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Accounts Payable Invoice for Advantage Corp $376.25

More on AR/AP Netting Is Just a Phone Call Away

Obviously automated AP/AR Netting is only just the tip of the iceberg when it comes to the features in Oracle Financials
R12 that will help you streamline your back office operations. If you need more assistance in setting up AR/AP Netting or
tailoring some other Oracle R12 Financials functionality to meet your needs, please feel free to contact us at 1-800675-0032 and we will be happy to put you in contact with one of our Oracle Financials experts.

References
AP/AR Netting A Technical Insight, August 2008, Shanmuga Senapathy

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LEGAL DISCLAIMER:

The information contained herein should be deemed reliable but not guaranteed. The author has made every attempt to provide current and
accurate information. If you have any comments or suggestions, please contact us: info@itconvergence.com.

IT Convergence White Paper:

Setup and Use the AP / AR
Netting Feature
April 2013

IT Convergence
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Redwood City, CA 94063, USA

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IT Convergence.
All rights reserved.

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