Oracle R12 AP/AR Netting Process

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 to under how Netting works.

Background

The Oracle AP/AR Netting is a feature that provides a foundation to create 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.

What is AP/AR Netting?

Oracle AP/AR Netting allows you to net your Payables invoice 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 between how 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 associated with it in eBusiness Suite and you can then start to net AP and AR transactions.

Below is a conceptual diagram of how this works.

  

How it worked before R12?

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

Contra-Charging

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

US Federal Financials Netting

This solution specifically addresses the needs of US requirements.

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 a migration path to the Release 12 Netting feature.

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 simulation sheet, which is attached to this white paper.

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 the netting process. Set the Netting Account flag to yes. Assign this bank account to the seeded Receivables receipt 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 multiple unrelated 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.

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 the netting process.

D (disregard) – This means all eligible invoices will be selected for netting irrespective of whether or not they are matched to purchase orders.

Netting Agreement

Create netting agreement to setup the rules that will decide 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.

How Netting batches are created?

Let’s have a look at how Netting batches are created. The following diagram will depict how invoices are ordered and selected for creating a netting batch.

 

In the following sections, we will discuss what criteria are used for selecting AP Invoices and AR Transactions, and how they are ordered for netting.

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 populating AP_PAYMENT_SCHEDULES.Checkrun_id Column for the selected invoices

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 the operating unit of the batch.

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 which transaction/invoice will be netted first.

What happens when we submit a Netting Batch?

The following validations are performed when a netting batch is 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 validated again. 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

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 the AR transaction may have been modified since it was included in the netting batch

o 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 batch settlement 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 the FUN_AGREEMENTS.bank_account_id for the given batch.

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 is updated 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 is updated in FUN_NET_AR_TXNS.RECEIPT_ID

If all processing goes through successfully then the batch is set to COMPLETE and the AP invoices and netting agreements are unlocked.

What are various Netting Batch Statuses?

	ng Batch	Event
	RUNNING	User creates the netting batch
	SELECTED	Review Batch option is set to YES
	ERROR	Error encountered while validating or selecting
		transactions
	SUSPENDED	Current date has gone passed the batch settlement
		date
	CLEARING	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 reversed
	APPROVED	User approves batch requiring approval
	COMPLETE	Netting process completed for transactions
	REVERSING	User chooses to reverse the batch
	REVERSED	Batch has been reversed

What tables are involved?

AP/AR Netting engine is owned by ‘Oracle Financials Common Modules’ (FUN) Product. All tables behind the scene will be stored under the FUN schema.

Information related to Netting is stored in the following tables:

	Name	Table Purpose
	FUN_NET_AR_TRX_TYPES_ALL	Netting	Agreement	–	Transaction
		types of AR
	FUN_NET_AP_INV_TYPES_ALL	Netting	Agreement	–	Transaction
		types of AP
	FUN_NET_AGREEMENTS_ALL	Netting Agreement – Details
	FUN_NET_SUPPLIERS_ALL	Netting	Agreement	–  Supplier
		Details
	FUN_NET_CUSTOMERS_ALL	Netting	Agreement	–	Customer
		Details
	FUN_NET_BATCHES_ALL	Netting Batch – Details
	FUN_NET_AR_TXNS_ALL	Netting Batch – Details of AR
		transactions
	FUN_NET_AP_INVS_AL	Netting Batch – Details of AP
		invoices

How these tables are linked?

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

Summary

The Oracle AP/AR Netting feature provides a foundation to create 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.