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ORACLE APPLICATIONS
WHITE PAPERAP/AR NETTING
A TECHNICAL INSIGHT
AUGUST 2008
Contributor: Shanmuga Senapathy, AP Support
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Contents
Introduction 3Objective 3
Scope 3
Background 2What is AP/AR Netting? 4
How it worked before R12? 5How does it work in R12? 6
What are the Setup Steps involved? 7How Netting batches are created? 9
What happens when we submit a Netting Batch? 12How Netting Batches are settled? 13
What are various Netting Batch Statuses? 15What are the tables involved? 16
How these tables are linked? 17
Summary 18Information Source 18
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Introduction
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 ofthis functionality. This paper is written with the intention of
helping implementers and those supporting the application tounder how Netting works.
Background
The Oracle AP/AR Netting is a feature that provides a
foundation to create netting agreements with flexibledefinition of business rules and association of trading
partners. It executes an automated netting process so thatcustomers can reduce their debt obligations without incurring
bank charges by creating unnecessary payments and receipts.
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What is AP/AR Netting?
Oracle AP/AR Netting allows you to net your Payablesinvoice 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 betweenhow 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 associatedwith it in eBusiness Suite and you can then start to net AP and
AR transactions.
Below is a conceptual diagram of how this works.
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How it worked before R12?
Prior to Release 12, there were several netting solutions in theeBusiness Suite:
Contra-Charging
This Globalization feature was originally a solution forGermany in Release 11, but then it became a RegionalGlobalization feature in Release 11i.
US Federal Financials Netting
This solution specifically addresses the needs of USrequirements.
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 amigration path to the Release 12 Netting feature.
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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 simulationsheet, which is attached to this white paper.
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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 thenetting process. Set the Netting Account flag to yes.
Assign this bank account to the seeded Receivablesreceipt class AP/AR Netting
Receivables System Options
Check the Allow payment of unrelated transactionscheckbox under the Receivables system options, if you
want to create netting agreements across multipleunrelated customers.
Netting batch approver
If approval is required for a netting agreement, the
approver must be set up as a contact for the tradingpartner (Customer / Supplier). The contact must be
setup with an email address.
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Chargeable Subcontracting
When the Profile option Chargeable Subcontracting
Enabled is set to:
Yes This will select invoices that were matched topurchase orders with outsourced assemblies by the
netting process.No This will select invoices that were matched to
purchase orders without outsourced assemblies by thenetting process.
D (disregard) This means all eligible invoices will beselected for netting irrespective of whether or not they
are matched to purchase orders.
Netting Agreement
Create netting agreement to setup the rules that willdecide 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.
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How Netting batches are created?
Lets have a look at how Netting batches are created. Thefollowing diagram will depict how invoices are ordered and
selected for creating a netting batch.
In the following sections, we will discuss what criteria areused for selecting AP Invoices and AR Transactions, and how
they are ordered for netting.
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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
o 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 (ifspecified) 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 theoperating unit of the batch.
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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 whichtransaction/invoice will be netted first.
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What happens when we submit a Netting Batch?
The following validations are performed when a netting batchis 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 validatedagain. 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 Nettingbatch process is initiated.
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How Netting Batches are settled?
Validation
o The process starts off with the validation of ARtransactions. This is necessary as the AR
transactions are not locked when the netting batch is
created and therefore there is a possibility that theAR transaction may have been modified since it was
included in the netting batcho 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 batchsettlement 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 theFUN_AGREEMENTS.bank_account_id for the
given batch.
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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 isupdated 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 isupdated in FUN_NET_AR_TXNS.RECEIPT_ID
o If all processing goes through successfully then thebatch is set to COMPLETE and the AP invoices and
netting agreements are unlocked.
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What are various Netting Batch Statuses?
Netting Batch
Status
Event
RUNNING User creates the netting batch
SELECTED Review Batch option is set to YESERROR Error encountered while validating or selecting
transactions
SUSPENDED Current date has gone passed the batch settlement
dateCLEARING 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 reversedAPPROVED User approves batch requiring approval
COMPLETE Netting process completed for transactionsREVERSING User chooses to reverse the batch
REVERSED Batch has been reversed
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What tables are involved?
AP/AR Netting engine is owned by Oracle Financials
Common Modules (FUN) Product. All tables behind thescene will be stored under the FUN schema.
Information related to Netting is stored in the followingtables:
Table Name Table Purpose
FUN_NET_AR_TRX_TYPES_ALL Netting Agreement Transactiontypes of AR
FUN_NET_AP_INV_TYPES_ALL Netting Agreement Transactiontypes of AP
FUN_NET_AGREEMENTS_ALL Netting Agreement DetailsFUN_NET_SUPPLIERS_ALL Netting Agreement Supplier
Details
FUN_NET_CUSTOMERS_ALL Netting Agreement CustomerDetails
FUN_NET_BATCHES_ALL Netting Batch DetailsFUN_NET_AR_TXNS_ALL Netting Batch Details of AR
transactions
FUN_NET_AP_INVS_AL Netting Batch Details of AP
invoices
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How these tables are linked?
Here is the Entity Relationship Diagram (ERD) for AP/ARNetting..
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