Solutions for SAP

Receivables
Management

Cash Application Automation in SAP

How to leverage emerging trends to increase cash application hit rate
by

Sashi Narahari
CEO, HighRadius

2013 HighRadius Corporation

Agenda
Cash Application Background
SAP Lockbox Overview
Architectural Choices
SAP Enhancements
Lockbox Preprocessing

Emerging Trends

2013 HighRadius Corporation

Cash Application Background

Payments & Remittances

Payments

Remittances

Check

Check Remittance

ACH

EDI 820 / 812

Wires or other EFTs

Email

Credit Card

Fax

Customer Websites
Customer self-service on a portal

How are you currently processing?

Payment Files
BAI, BAI2, EDI 823/820

Scenario 1: Fully Manual (Bank is not keying in)

Scenario 2: Checks are good. ACH is 100% manual
Scenario 3: Checks are good. ACH w/ EDI/CTX is good
Scenario 4: Checks are good. ACH w/all forms of remittances are good

Why is you lockbox hit-rate low?

Cash Application for checks is manual (Bank is not keying
in check remittance data)
Cash Application for EFT payments is mostly manual:
EDI customers not mapped
Email Remittances
Web Remittances

No remittance
Complexity of your business

Invoice matching is not just reference number based match

Deductions (Short-payments etc)
Cash Discounts
Multiple business units, cross-company code etc

2013 HighRadius Corporation

What is a high lockbox hit rate?

Hit Rate
#of payments auto-applied / total # of payments

On-Invoice Hit Rate

#of remittances lines auto-applied / total # of remittance
lines

2013 HighRadius Corporation

True efficiency of cash application operations

Total cost of cash application operations
Bank Fees
Cash App FTE Costs
Deduction Coding FTE costs

Very hard to establish an efficiency unless you do

benchmarking study within your specific industry
sub-vertical
On-Invoice Hit Rate is a reasonable indicator

2013 HighRadius Corporation

SAP Lockbox Overview

SAP Lockbox

Payment Files
BAI, BAI2, EDI 823/820

What is SAP Lockbox?

It is a logical set of configurations in SAP that
can correspond to a physical lockbox with a
bank
It is not restricted to only check payments
Ultimately it will Process a BAI/BAI2/823 file

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Sample BAI2 file

10070080000 70080000 0804292251 ------- this has date and time stamp
5800000222 08042970080000 70080000 lockbox number, date, bank account information
6001001000059000076070012 5858585 010152512 6 record has check amt
400100156011800000037 00001200000000000000GH Inv No & Inv amount
400100156011800000038 00001400000000000000GH
400100156011800000039 00001600000000000000GH
400100156091800000040 00001800000000000000GH
40010015601
00000000000000010000GH
- standalone deduction
6001001000067000076070012 5858585 010153512 customers Routing /Account number
400100156011800000041 00001400000000010000GH customer reason code
400100156011800000042 00001600000000000000GH
400100156011800000043 00001800000000000000GH
400100156091800000044 00002000000000000000GH
40010015601
00000000000000010000GH
6001001000075000076070012 5858585 010154512
400100156011800000045 00001600000000010000GH- invoice specific deduction
400100156011800000046 00001800000000000000GH
400100156011800000047 00002000000000000000GH
400100156091800000048 00002200000000000000GH
40010015601
00000000000000010000GH
8000000222 08042900030002010000 trailer record with batch amount for that day
9999900

SAP Lockbox Processing - Details

PARSE BAI2 FILE

USE THE 6' RECORD

FOR PAYMENT
ADVICE HEADER

SEGREGATE THE 6
AND 4 RECORDS

CREATE PAYMENT
ADVICE ITEM

READ THE NEXT 4

RECORD

YES

IS THIS A NEW
INVOICE ?

NO

IS THERE A
DEDUCTION ?

YES

PROCEED TO
CLEARING

YES

CREATE A SUB-ITEM

YES

IS THERE A
DEDUCTION ?

NO

NO

IS THIS THE LAST

4 RECORD ?

CREATE PAYMENT
ADVICE ITEM

NO

How to get a high On-Invoice Hit Rate?

Only two things matter:
1) How much electronic remittance data for
payments were you able to send to SAP?
2) Did you send the data tuned to the specific
nuances of SAP Lockbox algorithm?

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Example: SAP Lockbox Algorithm

Original Invoice Amount: $1,000
Record Type

Invoice
Reference

Invoice Amount

90000001

$1,000

Record Type

Invoice
Reference

Invoice Amount

90000001

$800

Record Type

Invoice
Reference

Invoice Amount

90000001

$800

90000001

Deduction
Amount

Code

Processing Status
Applied

Deduction
Amount

Code

Processing Status
Partially Applied

Deduction
Amount

Code

Processing Status

Applied
$200

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SP

Applied

2013 HighRadius Corporation

Nuances of SAP Lockbox to be effectively

handled

Payment Terms & Cash Discounts

Tolerances
Deductions
Overpayments
Customer Master (Alternate Payers)
Reference Number of Invoice Number
Matching

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Two Solution Architecture Options

Solution Architecture (Options)

1) SAP User Exit Enhancements
Custom logic to enhance the standard SAP logic for
creating payment advices

2) Lockbox Preprocessing
Intercept & transform the data before sending to SAP

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Option 1: SAP User Exit Enhancements

Two Business Add-Ins/User Exits for standard
SAP lockbox program
EXIT_RFEBLB20_001
Called exactly once per check, immediately before
payment advice is created

EXIT_RFEBLB20_002
Called for each invoice being paid by check. Can change
fields such as customer number, company code, invoice
number, document number, reason code etc.

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2013 HighRadius Corporation

Option 2: Lockbox Preprocessing

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2013 HighRadius Corporation

Trade-Offs

SAP User Exit Enhancements

Lockbox Preprocessing

Only Simple Transformation

Rules
Only EDI remittance capture
supported

Complex Transformation
Rules can be implemented
Remittance capture via
OCR, Email Parsing, Web
Aggregation, EDI
Need a 3rd party vendor
solution
Standard SAP with a 3rd
party solution

Easy & cost-effective to

implement
Custom SAP (Z Objects)

Emerging Trends

Optical Character Recognition (OCR)

Sample Check Remittance Advice

Classic OCR - Data Extraction Template

OCR Output

Emerging Trend - Dynamic OCR

Sample - Dynamic OCR Capture

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Email Parsing

Remittance details sent by the Customer in the Email

Remittance
Information sent in
the body of the Email

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2013 HighRadius Corporation

Sample Remittance Information Capture from Email Body

Payment Backup extracted

from the body of the Email
and loaded in the system

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2013 HighRadius Corporation

Remittance details sent by the Customer as a PDF attachment in the Email

Remittance
Information attached
in the Email as a PDF

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2013 HighRadius Corporation

Remittance details sent as a PDF attachment in the Email

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2013 HighRadius Corporation

Sample Remittance Information Capture from Email Attachment

Payment Backup extracted

from the PDF attachment

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2013 HighRadius Corporation

Web Aggregation

Remittance Details Available on Website

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2013 HighRadius Corporation

Key Take Away Points

Header level Hit Rate is not a true measure
of Cash Application operations efficiency
Invoice Hit Rate is a better indicator
Consider all costs to get a true picture of your
Operating Expenses (Bank Fees, Cash Team
FTE, Deduction Coding FTE)

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Key Take Away Points (Contd..)

SAP User Exit Customization Option
If you are getting 90%+ check payments
Most ACH payments have EDI remittance
Bank fees is less then 0.6 pennies
Lockbox User Exit Customization could be a cost-effective solution

Lockbox Preprocessing
Remittance sources are multiple (Email, Web etc)
You want to take a proactive approach to push for EFT payments
to reduce DSO
Need advanced transformation rules (deductions, discounts,
overpayments, remittance line splitting/merging)

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2013 HighRadius Corporation