SETUP AND USING ORACLE FINANCIALS AP / AR NETTING FEATURE

A White Paper prepared by IT Convergence presented at Collaborate 13.

Author

IT Convergence Consulting Services

Copyright

IT Convergence 2013

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TABLE OF CONTENTS

Background ................................................................................................................................................................................. 3

Overview ..................................................................................................................................................................................... 3

Setup .......................................................................................................................................................................................... 3

Setup Step 1 ...................................................................................................................................................................... 4

Setup Step 2 ...................................................................................................................................................................... 5

Setup Step 3 (optional) ...................................................................................................................................................... 7

Setup Step 4 ...................................................................................................................................................................... 7

Netting Process ........................................................................................................................................................................ 10

Netting Process Step 1 .................................................................................................................................................... 10

Accounting Entries Generated .................................................................................................................................................. 11

Setup Example ......................................................................................................................................................................... 11

References ............................................................................................................................................................................... 12

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Theres Got to Be a Better Way.

Until Release 12 the ability to Net a payables account with a receivables account was creative at best. Assume you have

a customer, TradingPartners R Us, who has two transactions totaling $150.00, which by the way are 120 days past

due! TradingPartners R Us is also a supplier to your company, and you owe them $75.00, due this month. Now I dont

know about you, but I sure dont want to be sending that money when they owe me. However, it is important that I show

that I paid them. Prior to Release 12 this could be accomplished by:

1. Create a BOGUS Bank Account with the BOGUS Bank Account asset account number posting to a clearing account. 2. In Payables, create a check using the BOGUS Bank Account to Supplier TradingPartners R Us for $75.00 This

would show the invoice paid in full.

3. In Accounts Receivable, create a receipt against the oldest transaction for $75.00 and receive the funds into the BOGUS Bank Account.

4. The net result will show no actual money moving but the Payable has been eliminated and the receivable has been reduced by $75.00\

The process was both cumbersome and time consuming. For years the Financials end user community collectively sighed,

Theres got to be a better way.

Oracle Financials R12 Automates AP/AR Netting

Finally, in Release 12 Oracle responded to the pleas of Accounts Payable and Accounts Receivable clerks everywhere

and ahs automated the AP/AR Netting process. This paper will guide you through the setup and use of the Netting

process.

Setup

We need to create a BOGUS bank account; now we all know auditors dont like the word BOGUS, therefore, Oracle is

going to call this a Netting Account. It is only necessary to have a single netting account. However, some customers

have found that having two netting accounts is convenient, one for intercompany netting the other for external

organizations / trading partner.

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SETUP STEP 1

In Cash Management, Navigate to Banks, create Netting Bank and Bank Branch. I will use the company address for my

Netting Bank.

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SETUP STEP 2

In Cash Management, Navigate to Bank Accounts, create a Netting Account for the Bank created in Step 1. The

Netting Agreement Flag must be set to Yes and the Receivables Receipt Class set to AP/AR Netting

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Clearing Account

Netting set

to Yes

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SETUP STEP 3 (OPTIONAL)

Will the trading partner need to approve the proposed documents to net, prior to the actual process? If so, create a

contact for the trading partners approver. This contact must have a valid email address.

SETUP STEP 4

In Receivables, navigate to Netting Agreement. Create a Netting Agreement for every combination of supplier/customer

or trading partner you wish to net. The purpose of the Netting Agreement is to establish the rules the netting engine will

follow when selecting items to net.

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Netting Process

NETTING PROCESS STEP 1

In Receivables, submit a Netting Batch for each Netting Agreement.

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Accounting Entries Generated

Clearing Payables Receivables

Debit Credit Debit Credit Debit Credit

$376.25 invoice #Test 1

$1,000.00 Transaction #12024

$376.25 AP/AR Netting

$376.25 AP/AR Netting

$376.25 AP/AR Netting

$376.25 AP/AR Netting

Setup Example

Accounts Receivable Transaction for Advantage Corp $1000

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Accounts Payable Invoice for Advantage Corp $376.25

More on AR/AP Netting Is Just a Phone Call Away

Obviously automated AP/AR Netting is only just the tip of the iceberg when it comes to the features in Oracle Financials

R12 that will help you streamline your back office operations. If you need more assistance in setting up AR/AP Netting or

tailoring some other Oracle R12 Financials functionality to meet your needs, please feel free to contact us at 1-800-

675-0032 and we will be happy to put you in contact with one of our Oracle Financials experts.

References

AP/AR Netting A Technical Insight, August 2008, Shanmuga Senapathy

http://www.itconvergence.com/contact-us

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LEGAL DISCLAIMER:

The information contained herein should be deemed reliable but not guaranteed. The author has made every attempt to provide current and

accurate information. If you have any comments or suggestions, please contact us: info@itconvergence.com.

IT Convergence White Paper:

Setup and Use the AP / AR

Netting Feature

April 2013

IT Convergence

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IT Convergence.

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