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Release 12 AP / AR Netting : Overview

Product Manager

Agenda

Concept
11i equivalent
Features
Benefits
Pre requisites & Set Up
Process flow

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Netting as a
Concept

Netting Concept
Trading Partners
Parties with whom the organization transacts
Suppliers as well as Customers

If a trading partner is both Supplier and Customer

Receivable from and payable to same trading partners
Ideally only balance is settled

For Example :ERP Ltd. buys laptops from Laptops Ltd for $ 10,000
Laptops Ltd. procures software from ERP Ltd. for $ 8,000
ERP Ltd. would pay only the balance $2,000

Netting of receivable and payable a necessity

Customers need a mechanism to automate this netting process

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11i Equivalent

11i Contra Charging

Set up & Process flow
SETUP

PROCESS

Create Customer
Create Supplier

Create transaction source

Create payables
Look up codes

Setup Auto Accounting

Rules

Create Payable Invoices

Create Receivable
Invoices

Document Sequence
Assign

Submit Contra
Charging request

Document Category
Credit memos
Created in AP & AR
Create transaction type

Automated Process

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11i limitations to Salient

Features in R12

11i Limitation R 12 Feature

1) Trading Partner Approval
11i Limitation
11i Limitation

No facility for
taking Trading
partner approval
for netting

Release 12 feature

Report of all transactions

proposed to be netted can be sent
to trading partner
He can review & reconcile
transactions with his ERP
He can approve or reject the
netting
Approval required flag to be
checked during set up

11i Limitation R 12 Feature

2) Netting with Group of Companies
11i Limitation

Restricted to
one trading
partner

Release 12 feature

Netting can be done with multiple

trading partners
Prioritize parties for netting
Mainly useful if trading partners
are related or under a single
parent company

11i Limitation R 12 Feature

2) Netting with Group of Companies example
Parent Company A

Customer X

Subsidiary BB
Subsidiary

Subsidiary
C
Subsidiary C

Subsidiary
D
Subsidiary D

Subsidiary
SubsidiaryEE

Purchase
Sale

Payable

Receivable

Subsidiary B

Subsidiary D

Subsidiary C

Subsidiary E

11i Limitation R 12 Feature

3) Choosing the Netting Basis
11i Limitation

No flexibility of
choosing the
netting basis

Release 12 feature

Provides flexibility to select the

netting basis
On the basis of date : Oldest to most recent
Most Recent to oldest

On the basis of amount : Amount ascending

Amount descending

11i Limitation R 12 Feature

4) Reporting
11i Limitation

Release 12 feature

Following 2 reports are available

Proposed Netting Report

No feature for
viewing reports

Snapshot of all transactions

proposed to be netted
Sent to the trading partner

Final Netting Report

Details of all netted transactions
Documentary evidence for
Compliance & Audit Trail

11i Limitation R 12 Feature

5) Multi Currency Netting
11i Limitation

No feature to net
transactions
accounted in
multiple
currencies

Release 12 feature

For netting transactions

accounted in different currencies
then user has three options : Net Within Currency
Use Single Currency
Convert to Accounting
Currency

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Netting Benefits

AP/AR Netting Benefits

Creation of automatic Payments in AP and Receipts in AR
resulting in
Enhanced operational efficiency
Reduction in manual data entry & associated errors
Reduction in admin cost
Ease of Setup and reusability
Better idea of cash flows resulting in
Better financial planning & budgeting
Reduction in interest on debt obligations
Reduction in bank charges
Audit Trail

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Pre Requisites

Pre Requisites

(1)

Create a bank account for netting where

Netting Account flag checked as yes
Assign a GL account
Multiple Currency Receipts & payments checked as Y

Netting Account

Pre Requisites

(2)

In Receivables module
Specify the bank account as default netting bank account
for a operating unit in receipt class
In system options check the Allow payment of unrelated
transactions

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Netting set up and

process flow

Initiating the netting process

On navigating to Netting functionality in AP/AR we see
the following 2 tabs :1) Netting Agreement :- Parameters/Rules on which
netting is based.
2) Netting Batch : Associate Netting agreement
List of eligible transactions
User able to review and edit the transactions
selected for netting

Example :Best Laptops Ltd

Laptops Ltd.

AR Transactions

AP Transactions
Inv

Amt

Date

AP01

5500

05-Jul-07

AP02

2000

AP03

2500

Inv

Amt

Date

AR01

4000

04-Jul-07

15-Jul-07

AR02

3000

20-Jul-07

25-Jul-07

AR03

1000

28-Jul-07

10,000

8,000

Netting Agreement
Netting Batch
Compare AR and AR Balances
AR Balance = 10000, AR Balance = 8000
So the Netting Amount = 8000

Transactions Selected For Netting

AR Transactions

AP Transactions
Inv
AP01

Amount
Due Date
5500
05-Jul-07

AP02

2000

15-Jul-07

AP03

500

25-Jul-07

Inv

Amount

Due Date

AR01

4000

05-Jul-07

AR02

3000

15-Jul-07

AR03

1000

25-Jul-07

Creating Netting Agreement

Creating Netting Agreement

Step 1

Creating Netting Agreement

Step 2

Creating Netting Agreement

Step 3

Netting Batch

Creating a Netting Batch

Netting Batch
Receivables transaction review

Netting Batch
Payables transaction review

Proposed Netting Report

Netting Batch
Payables transaction review

Netting Batch: Reverse

Final Netting Report

Status Message description

Status
Message
Running
Selected
Submitted
Suspended
Rejected
Approved
Complete
Error
Reverse

Description
Netting batch is submitted for execution
Netting batch is saved but yet to submit for execution
Batch is submitted for trading partner approval
Trading partner does not approve the Netting Batch
by the Required Response Date
Trading Partner Rejects the batch
Trading partner approves batch requiring approval
The Netting has been completed and all transactions
are cleared.
System encountered error while validating /
selecting transaction.
Netted batch is reversed

Payment details in Payables

Receipt details in Receivables

R12 Netting Setup and process

Summary of Setup & Process flow
PROCESS

SETUP

Create Netting
Bank Account

Create Payable Invoices

Need
Changes to the
Transactions?
Yes

Receivables
System Options

Create Customer
Create Supplier

Create Netting Agreement

Create Receivable
Invoices

Remove, Add, Prioritize

Transactions for Netting

Submit Netting Batch

Create Netting Batch

Listing of eligible
transactions
for netting

AR: Receipts created

& applied to
Selected Invoices
AP: Payments created &
applied to the
selected Invoices

Automated Process

No

Additional Resources
For Customers and Partners
R 12 AP User Guide
For More Information about our products
http://www.oracle.com/products/

Oracle Product Documentation:

http://www.oracle.com/technology/documentation/applications.html

QUESTIONS
ANSWERS

Thank You.