The document provides an overview of AP/AR netting in Oracle Applications. It discusses how netting allows payables and receivables balances to be offset between customers and suppliers. The key steps include setting up a netting bank account, agreements, and batches. Batches select and order eligible invoices and transactions based on criteria. When submitted, batches validate data and settle by creating payments and receipts if approved.

1. AP/AR Netting – A Technical Insight
ORACLE APPLICATIONS
WHITE PAPER
AP/AR NETTING –
A TECHNICAL INSIGHT
AUGUST 2008
Contributor: Shanmuga Senapathy, AP Support
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2. AP/AR Netting – A Technical Insight
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Contents
Introduction 3
Objective 3
Scope 3
Background 2
What is AP/AR Netting? 4
How it worked before R12? 5
How does it work in R12? 6
What are the Setup Steps involved? 7
How Netting batches are created? 9
What happens when we submit a Netting Batch? 12
How Netting Batches are settled? 13
What are various Netting Batch Statuses? 15
What are the tables involved? 16
How these tables are linked? 17
Summary 18
Information Source 18

3. AP/AR Netting – A Technical Insight
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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 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.

4. AP/AR Netting – A Technical Insight
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.
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5. AP/AR Netting – A Technical Insight
How it worked before R12?
Prior to Release 12, there were several netting solutions in the
eBusiness Suite:
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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.

6. AP/AR Netting – A Technical Insight
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.
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7. AP/AR Netting – A Technical Insight
What are the Setup Steps involved?
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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.

8. AP/AR Netting – A Technical Insight
• 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.
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Note: -
The complete setup steps, including screenshots can be found
in the attached simulation sheet.

9. AP/AR Netting – A Technical Insight
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.
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10. AP/AR Netting – A Technical Insight
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 (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.
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11. AP/AR Netting – A Technical Insight
• 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
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agreement.
• The priority is important as this determines which
transaction/invoice will be netted first.

12. AP/AR Netting – A Technical Insight
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.
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13. AP/AR Netting – A Technical Insight
How Netting Batches are settled?
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• 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.

14. AP/AR Netting – A Technical Insight
• 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
o If all processing goes through successfully then the
batch is set to COMPLETE and the AP invoices and
netting agreements are unlocked.
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15. AP/AR Netting – A Technical Insight
What are various Netting Batch Statuses?
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Netting Batch
Status
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

16. AP/AR Netting – A Technical Insight
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:
Table Name Table Purpose
FUN_NET_AR_TRX_TYPES_ALL Netting Agreement – Transaction
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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

17. AP/AR Netting – A Technical Insight
How these tables are linked?
Here is the Entity Relationship Diagram (ERD) for AP/AR
Netting..
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18. AP/AR Netting – A Technical Insight
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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.
Information Source
Oracle® Payables
User's Guide
Release 12
Part No. B25454-03
AP/AR Netting – A Technical Insight
August 2008
Contributor: Shanmuga Senapathy
Oracle Corporation
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