Lockbox in SAP

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Overview

What is a lockbox?A company can create accounts called 'lockbox' accounts at its bank (or banks) that act as

payment collection accounts for customer payments. The company then informs their customers that all open

item payments for their accounts must be submitted to one of the established bank lockbox accounts. The bank

collects these payments along with the customers' remittance information that indicates what open items thecustomer payments intend to clear. Data entry clerks at the bank manually enters the information into an

electronic file for transmission to the company to which the lockbox account belongs. These files are typically

transferred nightly to the various lockbox owners (companies). The files adhere to one of two customized, 30-

year old Bank Administration Institute banking industry transmission formats. The original, created in 1970,

was known as BAI Lockbox Communications Standards. It provided only basic payment details, without

invoice details. Since that time, modifications have been made by users to this BAI Lockbox standard format

and this modified version has become known as "BAI2". This new 'non Bank Administration Institute'

sanctioned format now included full invoice details with payments, and is considered the latest, most robustformat for lockbox transmissions.

What is the difference?As defined by SAP, as well as by the lockbox staff at most banks, BAI and BAI2

formats differ in their level of information detail. BAI format does not separate out the incoming check line

items by invoice subtotal reference. Instead, one check total amount simply has all invoices listed underneathit. Thus, in BAI format files, the entire check amount must match perfectly (or within configured payment

difference tolerances) the total amount for all invoices listed. Otherwise, the entire check will enter into SAPas:

1. An "On account" posting (if the payment and invoice totals don't match, but a customer is identified by

MICR), or

2. An "Unprocessed" posting (if no customer account and documents could be identified from the transmission).

In these scenarios, your Accounts Receivable cash application clerks will have to perform semi-manual post-

processing application within SAP to clear unmatched payments against open items on the proper accounts.

Conversely, BAI2 format splits the check total into separate invoice references and associated payment

amounts. Thus, within a large batch, BAI2 format files will allow a "Partially applied" status in which someidentifiable payments within the check total will be matched and cleared, others will land on account. As a

result, your 'hit rate' percentage of payment-to-invoice matching from each transmission is likely to be higher

when using BAI2 rather than BAI formats.

What format should you use? This decision is dictated by a cost-benefit analysis. BAI2 is a more robust

file format, but you pay more for this information richness. BAI is cheaper, but may not offer you a suitable

'hit rate' for automatically matching payments to customer open items. If you receive a large volume of lockboxpayment transmissions each day, especially if many items are paid per single check and deductions occur

commonly, it is recommended that you use BAI2. Otherwise, a significant portion of your A/R staff time and

effort will be spent on applying failed lockbox payments. However, if you only receive a small portion of your

customer payments via lockbox transmissions, then BAI format is likely to provide adequate results. You will

have to inquire with your bank to ensure that they still utilize the BAI format.

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CONFIGURATION OF LOCKBOX IN SAP

First we have to create house bank accounts

Configuration: Defining House Banks

Functional Area: FinancePath: IMG

Select Financial Accounting (New) Bank Accounting Bank Accounts Define HouseBanksPathT-Code: FI12

Configuration Item: Defining House Banks

Procedure0

1. Follow menu path

2. Enter company code U009

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3. Click on the

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4. Double click on

5. House Bank has been created with Bank Account.

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Configuration: Defining Lockbox Accounts for House Banks

Functional Area: Finance

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Path: IMG

Select Financial Accounting (New) Bank Accounting Bank Accounts Define Lockboxesfor House BanksT-Code: OB10Configuration Item: Define Lockboxes for House Banks

Description: In this step, you define your lockbox accounts at the house banks. Thus, on theoutgoing invoice you can inform your customer of the lockbox to which payment is to be made. Byspecifying this, you can optimize the payment transactions. The lockbox procedure is currently usedonly in the USA.

Activities

1. Specify your lockbox links (company code; key of the lockbox to which the customer is to pay;house bank ID; lockbox number at your house bank).

2. For customer master data, you can determine to which lockbox number the customer is to pay inthe application menu ("Payment Transactions / Company code data").

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Procedure0

1. Follow menu path

2.0 Select Execute

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3.0 Double-click

Enter House Bank, Lockbox and Lockbox number then press Save.

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So here we have created

- The Co Code to which lockbox belongs

- A name of the lockbox to be used in customer master

- Name of the house bank to which lockbox belongs

- Lockbox (account number) at the house bank

Assign the same in customer master data.

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Result

You have successfully created the lockbox identifiers.

Comments

Configuration: Defining Lockbox Control parameters for House Banks

Path: IMG

Select Financial Accounting (New) Bank Accounting Business Transactions PaymentTransactions Define Lockbox Define Control ParametersT-Code: OBAY

Configuration Item: Define Lockbox Control Parameters

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Description: In this activity you store control data for the lockbox procedure. Currently, only the

procedure LOCKBOX is supported. This data is needed for importing lockbox files sent bybanks. Currently, only BAI and BAI2 file formats are supported by SAP.It includes the following:

Procedure0

1. Follow menu path

2. Press Execute

3. Then Double click on format

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BAI Record Format: Specify the length of the document numbers (10 in the standard SAP System)and the number of document numbers in record types 6 and 4 of the BAI file. Your bank must agree onthis format information.

BAI2 Record Format: It is not necessary to specify the length of the document and the number ofdocument numbers in record types 6 and 4. This is because BAI2 file is designed that eachdocument number is on a different record type 4 with its corresponding payment and deductionamounts. Your bank must agree on this format information.

Explanations of other field are as under

- G/L account posting: Activate it (recommended), if you want the system to generate G/Laccount postings (debit bank, credit cash receipt account).

- Incoming Customer payment: Activate it (recommended), if you want the system to executeincoming payments postings to customer sub ledger accounts to clear customer account and createresidual postings.

- Insert bank details : activate it , if you want to create a batch input session (text sessionname) that update bank details (MICR) of customers in their master records for whose

who either changed their bank or did not have information. It is important if invoice can

not found that check can be applied to customer based on MICR information.

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Partial Payment: With this indicator, you can specify that payments received with this flag active will be postedas partial payments in that case where the payment is insufficient for full clearing. The default behavior is togenerate residual items with such payment receipt.

-

Configuration: Defining Lockbox Posting data for House Banks

Path: IMG

Select Financial Accounting (New) Bank Accounting Business Transactions PaymentTransactions Define Lockbox Define Posting DataT-Code: OBAX

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4. Then Press Save button

Control Parameters will be created.

Description: In this activity you store information needed to process particular lockbox data and

generate postings. The Destination and Origin are routing information and defined by your bank.

Destination: This field contains the destination code the bank submits to you in your lockbox file.

Origin: This field should contain your lockbox (bank account) number at bank.

For every unique destination/origin, posting information is needed to create the following postings:

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G/L posting - G/L account number (bank and/or bank sub-account- check deposit clearing account) for

the lockbox holder in the company code.

A/R posting Initial entry made by lockbox is debit check deposit clearing account and credit

bank clearing account. System then debit bank clearing account and credit customer ARaccount for all customers matches it able to make. For unmatched items credit remains in bankclearing account to be settled manually. Afterwards EBS will debit our bank main account andcredit check deposit clearing account.

In addition, specify the document types and posting keys for these postings.

This posting key is used in lockbox processing when postingresidual Items or differences to customer accounts.

ANNEXURE-1

LOCKBOX BAI2 TEMPLATEFOR USE WITHINTHE LOCKBOX DATA

IMPORT PROGRAM

Sample Lockbox file:

100YPCCDESTINYPCCORIGIN98121512022YPCCDESTINYPCCORIGIN50020010012345981215YPCCDESTINYPCCORIGIN60020020000090000011000390556677889 0102034194002003601716000002 00000100000000000000gh4002004602918000018 00001000000000000000gh70020050012345981215002000009000080020060012345981215000200000900009 0090000 00900009000002

The Principle: What is different between the BAI and BAI2 formats?

In the BAI format, the file can use the 6 Record to hold the first three

invoices, and consecutive 4 Records to hold the overflow of up to 6

invoices each, per check. The payment amount is given for that entire

check, not for each individual invoice as well as the check payment total.

The BAI and BAI2 formats use the same record types and formats for Records

1, 2, 5, 7, 8, and 9.

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Therefore, use spaces or zeros to make up the excess space not used by an

item within the record. For example, if your Origin of Transmission onlyuses 8 characters, then it should be followed by two blank spaces. Most

customers do not need the values in HR006.

Record 2: Table FLB02

------SAP Lockbox DOES NOT NEED TO USE RECORD 2 -----

1 2 3

2YPCCDESTINYPCCORIGIN

* *1. The item in blue is the Record Type indicator. Record 2 is the Service

Record. From an SAP perspective, the 2 Record is not a mandatory recordfor lockbox importing. Some banks will utilize a 2 Record, others will

not. Sometimes the information contained within this record will not

adhere to the proper definition, but rather be a restatement of the

Record 1 (as shown above). If used, there can only be one Record Type 2

per lockbox transmission. There can be many lockbox transmissions within

a single file, thus many 2 Records within the file. (Field name SR001)

2. The item in green is the lockbox Destination/Origin. This item will have2 characters. (Field name SR002)

3. The item in dark red is the Reference Code for the lockbox. It is notgenerally used, but may be filled with information. This will contain up

to 10 characters.(Field name SR003)

NOTE: SAP does not need the next five fields, but they are listed here for

info.

The next item in this format is the Service Code for the lockbox, which

the banks use for their own purposes to identify the transfer as a

lockbox transfer. This item will use 3 characters/spaces. (Field name SR004)

Following that is the Record Length, which will use 3 characters/spaces.(Field name SR005)

Next is the Block Size of the lockbox (3 characters/spaces). (Field nameSR006)

The Format Code for the lockbox follows in order(1 characters/spaces).(Field name SR007)

The remainder of the record is made up of 40 characters of filler. (Fieldname SR008)

The total length for this record is 80 characters. Be sure to pay attention

to spacing!

Record 5: Table FLB 05

1 2 3 4 5 6 7 8

501200179960 991020DC026 79960 (customer-specific format example)50020010012345981215YPCCDESTINYPCCORIGIN11111222223333344444555556666677

* * * * * *1. The item in blue is the Record Type indicator. There will be one Record

Type 5 in each batch within the Lockbox file. Record 5 is the Detail

Header Record. There can be many batches in a lockbox transmission. If

there are four batches, there will be four 5 Records. (Field name DH001)

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2. The item in green is the Batch Number for the Lockbox. This item will

have 3 characters. (Field name DH002)3. The item in dark red is the Batch Item Number for the Lockbox. This will

contain up to 3 characters (and must fill all 3 spaces). (Field name DH003)

4. The next item in black is the Lockbox Number. This item will use 7spaces. Most customers prefer to have the number left-justified and

blank-padded right. However, the bank may require that you include

significant leading zeros if that is part of their own internal lockbox

numbering scheme. (Field name DH004)

5. Following that is the Deposit Date in dark blue, which will use 6 spaces.(Field name DH005)

6. In purple is the Immediate Destination of the Lockbox (10 chars/spaces).Most customers will use left-justification and blank-padding right. (Fieldname DH006)

7. In dark yellow is the Origin of Transmission transit routing (10chars/spaces). DCI will use left-justification and blank-padding right.(Field name DH007)

8. The remainder of the record is made up of 40 characters of filler in

gray. DCI will not use this field. (Field name DH008)


to spacing!


1 2 3 4 5 6 7

60120020001800000051000020321654987 CK991412 (customer-specific format example)60020020000090000011000390556677889010203412

* * * * * *1. The item in blue is the Record Type indicator. Record Type 6 can appear

numerous times in the Lockbox file or in each batch, but only once per

check. A new 6 Record marks the start of a new item number. Record 6 is

the Detail Recordwhich applies to a particular check in the Lockbox.(Field name DR001)

2. The item in green is the Batch Number for the Lockbox. This item willhave 3 characters. (Field name DR002) The bank sets the rules for how a batch

is defined. For example, some banks will deliver up to a maximum of 50

checks in one batch. If there are 51 checks in a lockbox, thus there

would be at least 2 batches.

3. The item in dark red is the Batch Item Number for the Lockbox. This willcontain up to 3 characters (and must fill all 3 spaces). (Field name DR003)

4. The next item in black is the Remittance Amount for the Lockbox Record.

This item will use 10 characters/spaces (use zeros if necessary in front

of the amount).(Field name DR004)

5. Following that is the Remitter Identifier: Transit Routing No. in dark

blue, which will use 9 characters/spaces. (Field name DR005)

6. In purple is the Remitter Identifier: Account Number (10characters/spaces). In the event that account numbers are less than 10

digits, customers will use left-justification and blank-padding right.

(Field name DR006)AN IMPORTANT NOTE: it has been a recent trend (due to

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mergers) that some large banks are now moving to 13-digit customer bank

account numbers. As a result, you have two options (until SAP makestable/field changes to increase the size of the account field): ask your

banks to concatenate the number back to a 10-digit number, or make your

own field length modification to the related Data Element REID2_FLBwithSAP registration. Both carry their own inherent risks, but it is

probably best to make a field length change and protect the change until

the standard field length is changed by SAP.

7. In dark yellow is the Check Number (9 characters/spaces). If the customerscheck number is greater than 9 characters, then customers will request

the last 9 characters of the check number in this field. (Field name DR007)

After the check number is the Data Element for the Article field, a user-

defined field. The total length for this record is 35 characters. You may

use dummy numbers to fill out this record, or you may leave it blank. Its

best not to use this field. Further, if the customer account number (DR006)is expanded to accommodate account numbers of greater than 10 characters,

then this final field will be encroached upon. (Field name DR008)

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1 2 3 4 5 6 7 8 9 10

401200360171800000041 00006000000000000000 (customer-specific formatexample)401200440171800000065 00012000000000000000

4002003401716000002 000001000000000000004002004402918000018 00001000000000000000gh

* * * *1. The item in blue is the Record Type indicator. Record Type 4 can appear

numerous times in the Lockbox file. Record 4 is the Item Recordand it

is used to hold one invoice each. (Field name OR001)

2. The item in green is the Batch Number for the Lockbox. This item will

have 3 characters. (Field name OR002)3. The item in redis the Batch Item Number for the Lockbox. This item will

have 3 characters/spaces. (Field name OR003)

4. The item in purple Type of Overflow record (1 space). In this case, it isa 4 record because it contains only its own item, not an item

overflowed from a preceding 6 Record. SAP does not pay particular note

to the value in this field. (Field name OR004)

5. Bright greenis the Sequence Number for the record (2 spaces). SAP doesnot pay particular note to this field. (Field name OR005)

6. The item in yellow is the End Indicator for the Lockbox. A 9 indicatesthe last record of a Lockbox (1 space). SAP does not pay particular note

to this field.(Field name OR006)

7. The next items in black are the Invoice Numbers (16 characters/spaceseach). Only 1 invoice is placed into each 4 Record. (Field name IVCNR) Thebest field format convention would be to use left-justification, blank-

padding right for the invoice number(as shown in the Record 4 above).

Customers will sometimes receive payments for SAP document numbers (10-

digit) and also legacy system invoice numbers.

8. In dark yelloware the Payment Amounts per invoice (10 chars/spaces). (Fieldname PYAMT)

9. The items in grayare the Deduction Amounts per invoice (10 chars/spaces).Customers will not use these fields. (Field name DDAMT)

10. Dark Blueis the External Reason Code for the payment. Customers do nothave to use these fields. (Field name RESTG)

Up to the next 30 character spaces are available for short text. They may

be left blank if desired. Most customers will not use these fields (Field nameOR011)


1 2 3 4 5 6 7

701200579960 9910200020001800000 (customer-specific format example)

700200500123459812150020000090000

* * * * * *

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The following fields in the file are optional the file will function

without any data provided in these fields, although they may appear in somefiles and thus will be read:

8. Last Record Indicator(1 space): A 9 indicates the end of the record.(Field name ST008)

9. TM Amount and MTD Amount for the Lockbox (11 spaces each). (Field name ST009-ST010)

10. The remainder of the record is made up of 22 characters of filler in

gray.(Field name ST011)


to spacing!

SAP does not require that these fields be filled in.

Record 9:

1 2 3

900001085555555555555lkjasflkj5898800000000000000000000000000000000000000000000

1. The item in blue is the Record Type indicator. Record Type 9 appearsonly once in the Lockbox file. Record 9 is the Trailer Recordwhich

signifies the end of the Lockbox file. (Field name TR001)

2. The item in green is the Number of Records indicator. This item willhave 6 characters. (Field name TR002)

3. Following this record item, there will be a Filler Record of 73 spaces,

which can be either filled with characters or left blank. (Field name TR003)

Following this record item, there will be a Filler Record of 73 spaces,

which can be either filled with characters or left blank. (Field name TR003)

Lockbox in SAP

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