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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 transaction source Create Payable Invoices
Create Supplier

Create payables Setup Auto Accounting

Look up codes Rules Create Receivable
Invoices

Document Sequence
Submit Contra
Assign 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 Release 12 feature
11i Limitation
• Report of all transactions
proposed to be netted can be sent
• No facility for to trading partner
taking Trading • He can review & reconcile
partner approval transactions with his ERP
for netting • 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 Release 12 feature

• Netting can be done with multiple

trading partners
•Restricted to
• Prioritize parties for netting
one trading
• Mainly useful if trading partners
partner
are related or under a single
parent company
 11i Limitation – R 12 Feature
2) Netting with Group of Companies example

Customer X Parent Company A

Subsidiary
Subsidiary BB 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 Release 12 feature

• Provides flexibility to select the

•No flexibility of netting basis
choosing the • On the basis of date :-
netting basis • 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 • Snapshot of all transactions
viewing reports 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 Release 12 feature

• No feature to net • For netting transactions

transactions accounted in different currencies
accounted in then user has three options :-
multiple • Net Within Currency
currencies • 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
Inv Amt Date
AR01 4000 04-Jul-07
AP01 5500 05-Jul-07
AP02 2000 15-Jul-07 AR02 3000 20-Jul-07
AP03 2500 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

AP Transactions AR Transactions
Inv Amount Due Date Inv Amount Due Date
AP01 5500 05-Jul-07
AR01 4000 05-Jul-07
AP02 2000 15-Jul-07
AR02 3000 15-Jul-07
AP03 500 25-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
Description
Message
Running Netting batch is submitted for execution
Selected Netting batch is saved but yet to submit for execution
Submitted Batch is submitted for trading partner approval
Trading partner does not approve the Netting Batch
Suspended by the Required Response Date
Rejected Trading Partner Rejects the batch
Approved Trading partner approves batch requiring approval
The Netting has been completed and all transactions
Complete are cleared.
System encountered error while validating /
Error selecting transaction.
Reverse Netted batch is reversed
Payment details in Payables
Receipt details in Receivables
 R12 Netting Setup and process
Summary of Setup & Process flow
SETUP PROCESS

Need
Changes to the
Create Netting
Create Payable Invoices Transactions?
Bank Account
Yes No

Receivables Remove, Add, Prioritize

System Options Create Receivable
Transactions for Netting
Invoices

Create Customer
Create Supplier Submit Netting Batch
Create Netting Batch

AR: Receipts created

Create Netting Agreement & applied to
Listing of eligible
transactions Selected Invoices
for netting
AP: Payments created &
applied to the
selected Invoices
Automated Process
 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.