SAP FINANCIALS and CONTROLLING-Understanding Lock Box in SAP

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SAP FINANCIALS and CONTROLLING-Understanding Lock Box in SAP

  1. 1. SAP FINANCIALS & CONTROLLINGUNDERSTANDING LOCKBOX IN SAPPrepared By:Ms. Pramila NagarajFirst Class MBA Finance Graduate (2010) - FRESHERGlobal Academy of Technology, Bangalore (VTU- Belgaum)SAP Financials Associate Certified Consultant – Trainee/Fresher@ Source One Management Services Pvt. Ltd Bangalore2013 Copy Rights Reserved © SOURCE ONE Bangalore
  2. 2. 2013 Copy Rights Reserved © SOURCE ONE BangaloreUnderstanding LockboxObjective of this document is to explain the meaning, purpose, advantages and disadvantages of thelockbox. This document also explains various types of formats that can be used to process the lockboxdata.What is a lockbox?A company can create accounts called „lockbox‟ accounts at its bank (or banks) that act as paymentcollection accounts for customer payments. The company then informs their customers that all open itempayments for their accounts must be submitted to one of the established bank lockbox accounts. Thebank collects these payments along with the customers‟ remittance information that indicates what openitems the customer payments intend to clear. Data entry clerks at the bank manually enter theinformation 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 adhereto one of two standard banking industry transmission formats: BAI, BAI2, EDI820 and EDI 823.Advantages of Lockbox:Lockbox process has several advantages. Some of them can be illustrated as under.Avoid Manual handling of checksTimely processing of ChecksEasy reconciliationReduction of manpower costAvoid clearing ErrorsWhat is BAI?The standards for lockbox transmission files are defined by the Bank Administration Institute (BAI).Founded in 1924, the BAI organization is a partnership composed of its own BAI membership, a Board ofDirectors, various banking industry advisory groups and a professional staff. The organizational missionis “to help bank administrators achieve high levels of professional effectiveness and to help solvesignificant banking problems.” Activities include the definition of industry file formats, such as lockboxtransmissions. BAI and BAI2 are the two defined lockbox transmission formats, however, BAI isconsidered „outdated‟ by the BAI organization and is no longer supported (ie. standards are no longerupdated or improved). Nonetheless, many banks still offer transmissions in the old BAI format.
  3. 3. 2013 Copy Rights Reserved © SOURCE ONE BangaloreBAI vs. BAI2?BAI and BAI2 formats differ in their level of information detail. BAI does not separate out the incomingcheck line items by invoice subtotal reference. Instead, one check total amount simply has all invoiceslisted underneath it. Thus, in BAI format files, the entire check amount must match perfectly (or withinconfigured payment difference tolerances) the total amount for all invoices listed. Otherwise, the entirecheck will enter into SAP as:an “On account” posting (if the payment and invoice totals don‟t match), orAn “Unprocessed” posting (if no customer account and documents could be identified from thetransmission).In these scenarios, your Accounts Receivable cash application clerks will have to perform manualapplication to clear payments against open items on the proper accounts.Conversely, BAI2 splits the check total into separate invoice references and associated paymentamounts. 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. Asa result, your „hit rate‟ percentage of payment-invoice matching from each transmission is likely to behigher when using BAI2 rather than BAI formats.Electronic Data Interchange:Network transfer of structured electronic data from one computer application to another using standardmessage formats. EDI is described as the interchange of structured data according to agreed messagestandards between computer systems by electronic means. This standard format is nothing but a Set ofrules, agreed upon, accepted, and voluntarily adhered to, by which data is structured into messageformats for exchange of business and operational information. Lockbox related formats are Edi 820 and823.EDI 820:The 820 Payment Order/Remittance Advice transactions can be used to make a payment, send aremittance advice, or make a payment and send a remittance advice. The 820 transaction can be anorder to a financial institution to make a payment to a payee. It can also be a remittance advice identifyingthe detail needed to perform cash application to the payee‟s accounts receivable system. The remittanceadvice can go directly from payer to payee, through a financial institution, or through a third party agent.EDI 823The 823 Lockbox formats are sent by bank as confirmation of payments received from customers oflockbox owner. EDI 823 format contains information like Bank details of lockbox service provider, totalquantity of checks in each format transmission, total amount involved in total checks, number of batchinvolved ( batch represents maximum quantity of checks in each lot). Further break up like, customername, customer bank routing number, customer bank account number, check number and amount,number of invoices paid, amount per invoice, discounts for each invoice, deductions if any involved andcredit memos etc.Information available in these formats are generally used for clearing customer open items in SAPdepends upon the business requirement. Following EDI configuration is required to read the data fromcorresponding format and process customer open items.
  4. 4. 2013 Copy Rights Reserved © SOURCE ONE BangaloreFormat Idoc type Message type Process codeEDI 820 Pexer2002 REMADV REMAEDI 823 FINSTA01 LOCKBOX LBXDifference between EDI 820 and 823:In general EDI 820 formats will be used to send information to Vendor furnishing details of payment forhis supplies. From business standpoint, EDI 820 information comes from customer as the business isvendor to its customer. In fact EDI 820 is not a lockbox format but can be used in place of lockbox forcustomer open item processing. This information however is not a real payment but only a remittanceadvice.Where as lockbox format is an exclusive format that comes from bank confirming the payments receivedfrom customer. This is real payment information which got credited in business account at Lockbox /Bank.Besides this basic difference between these two formats some other differences can be summarized asunder.1. EDI 820 will have one to one information. Each customer will send remittance information to thebusiness. EDI 823 format will have several customer information in one format.2. Customer can not use EDI 823 format where as Bank can use EDI 820 format.3. EDI 820 is only an advice but 823 is a payment.4. Technical settings viz., Partner profiles, Basic type, Message type, function modules used in SAPare different between these two.5. Level of information will be different. EDI 823 will have Total number of checks involved, totalpayment amount involved, break up of checks and amount per batch, per customer etc will not beavailable in case of EDI 820.BAI vs. EDI in Lockbox:Both the formats are acceptable and can be used in SAP for processing customer open items. Howeverthe earlier one is (BAI) is file based and the later format is (EDI) is idoc based. File based is batch modeand EDI is real time information. BAI can not be made as real time process but EDI can be made asbatch process.EDI technology requires mapping tool. It creates intermediate document holding the information forfurther process. On the other side BAI format doesn‟t require this.As far as processing and of clearing customer open items in SAP is concerned, whether the format is BAIor EDI system will follow same transactions. FB01 > FBE1 > FB05. In either of the case if information isnot sufficient to clear open items, it is available for manual process.
  5. 5. 2013 Copy Rights Reserved © SOURCE ONE BangaloreSome additional advantages of EDI are:Data AccuracyReduce Technical Complexity.Lowe Personnel needs.Accelerates information exchange.Avoid Data Entry Errors.Lockbox Process - Data file to SAP open item clearing
  6. 6. 2013 Copy Rights Reserved © SOURCE ONE BangaloreWhat Bank will do?Bank Receives the payments, create a data file of the customerremittance information and payment amounts, and deposit thechecks into client bank account. On regular basis, Clientcompany receives this data file for processing to update in theiraccounts.What lockbox data filecontain?Depending upon the choice of services with the Bank, the lockbox file will contain information viz., Customer name, CustomerNumber, Customer MICR number ( Bank routing and AccountNumber), Check amount, Invoice number, Payment date,Payment amounts and other information.Lockbox Data FlowAs shown in the following picture, customers send theirpayments to a lockbox. Then bank collects the data and sends(either through EDI 820 and 823 formats) to R/3 users EDIserver (standard Process). The server translates the messageusing as standard EDI interface into an IDOC (Intermediarydocuments) and sends it to the SAP Server.What happens in SAPserverOnce the message is received and stored in SAP table, aprogram is clicked (RFEBLB30 or FLBP transaction) to checkthe information stored in bank statement tables and createpayment advices with Payment amount, invoice numbers andcustomer number.
  7. 7. 2013 Copy Rights Reserved © SOURCE ONE BangalorePayment advice ProcessingMatching ofcustomer openitemsThe lockbox program uses detailed information from the paymentadvice to automatically search and match customer open items. Thedocument number on the payment advice is matched against thedocument number in the customer open item file. Therefore, accuratepayment data is necessary for automatic clearing to take place.Payment AdviceStatusIf the checks were applied or partially applied, the advice is deletedfrom the system after processing. If the check was unprocessed orplaced on account of customer, the advice is kept on file for furtherprocessing.Post ProcessingThe post process function entails reviewing the status of the checksapplied through the lock box function. User must manually clear anychecks that were on-account of customer or not applied to customeraccount.The Lockbox overview screen details the number of checks ineach category. Depending on the status of the check, the userdetermines what needs to occur to apply checks.On account: If the bank keyed in the correct invoice number, theLockbox Import Program posts the payment on account. In the postprocessing step, you access the payment advice and correct thedocument number and upon saving the changes, the post processfunction clears the open item, deletes the payment advice and sets thecheck status to applied.Partially Applied: Checks that are partially applied may require furtherprocessing. Ex: Check may have paid 5 invoices, but one was incorrectly keyed. The first 4 invoices would clear. The payment amountfor the 5th invoice would be put on-account and would have to be postprocessed to clear.Unprocessed: Any payment that could not be identified either by
  8. 8. 2013 Copy Rights Reserved © SOURCE ONE Bangalorecustomer MICR number (check) or the document number would remainUnprocessed. Once the payment is researched and the customer andinvoice is identified, it would be applied during post processing.What configurationneeds to be done?Control Parameters: It determines the import format BAI, BAI2 & ANSIand the types of postings generated by the lockbox program. Thesecontrol parameters are needed for importing lockbox file sent by bank.Posting Data: Company code, Bank Information, G/L accounts forposting and clearing, document types and Posting keys.RFEBLB30 or FLBPtransactionLock Box data, Processing parameters (Procedure & Algorithm)Account assignment (Profit center), output control and Mode of calltransaction.

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