AP/AR Netting Process: A Quick Walkthrough

What is AP/AR Netting off Process?

• AP/AR Netting is a functionality which enable you to pay net difference between how much you owe the supplier and how much the supplier owe you. 
• i.e. there will be no cash flow for customer and supplier for transaction which are getting settled under Netting Off Process

Oracle Seeded AP/AR Netting Off Steps

The AP/AR Netting Off Process

• Pre-Requisites
• Customer and Supplier should be available
• Netting off Agreement should be available in above Customer and Supplier
• Process Steps
• Create AP and AR Invoices
• Submit Netting off Settlement using required Netting off Agreement
• Download the Settlement to a Spreadsheet
• Adjust Settlements by Adding or Removing required transactions
• Submit for Settlement
• Generate Netting Letter
• Reverse the Settlement
• If Reversed Generate Reversal Letter

Oracle AP/AR Netting Off Process Flow

Scenario - AP/AR Netting Off

• Scenario if amount of AP Invoice > AR Invoice
• AP invoice = $5000 and AR Invoice = $4000
• On Create and Submit Settlement for above scenarios 
• Payment Created for $4000 with Netting Bank
• Receipt Created for $4000 with Netting Bank
• AP invoice for $1000 left which can be paid manually or can be considered for next Settlement Cycle.

• Scenario if amount of AP Invoice < AR Invoice
• AP invoice = $4000 and AR Invoice = $5000
• On Create and Submit Settlement for above scenarios 
• Payment Created for $4000 with Netting Bank
• Receipt Created for $4000 with Netting Bank
• AR invoice for $1000 remain outstanding which can be considered for manual receipt or into next Settlement cycle

Changes to AP/AR Netting Off Settlement Process

• Netting off once settled can not be deleted
• Netting off can be reversed after being settled 
• AR Invoice can be restricted from being a part of settlement even if it qualifies netting agreement
• Restricting AR from being a part of settlement after getting selected causes Settlement Failure
• Any AP/AR Transaction can be added or deleted within Settlement even if it disqualifies Netting Agreement. i.e. Ad-hoc selection of AP/AR transactions before getting settled.

AP/AR Netting Off Implementation considerations

• Transactions should perform between Payables and Receivables for a single third party.
• Netting Off process executed at legal entity level. i.e. Separate Netting Agreement is needed for Business Transactions related to different Legal Entity.
• Netting Duty Role ‘Customer and Supplier Balance Netting’ required to creating Netting Agreement and Run Netting Settlement.
• Payment method and Receipt class must be defined under Netting Code/Methods
• Bank must be created with Netting Capabilities. i.e. This bank considered as Dummy Bank , where no Actual Cash Flow happened.
• Netting will only net invoices of the same currency together i.e. GBP with GBP or EUR with EUR. It will not net GBP with EUR.
• It is strongly recommended to have checkbox enabled to NO for Settle without Review while creating settlement

AP/AR Netting Off Setup Tasks-1

• Manage Payment Method
• Create Payment Method Under Code NETTING, This can be used for Sequencing, which is an optional Setup
• You can limit Payment Method depending on different options like BU

AP/AR Netting Off Setup Tasks-2

• Manage Bank Accounts
• Enable Bank Account for Netting
• Enable Bank Account for Multicurrency

AP/AR Netting Off Setup Tasks-3

• Manage Receipt Class and Methods
• Create under AP/AR Netting and associate Netting Bank

AP/AR Netting Off Setup Tasks-4

• Manage Receivable System Options
• Enable Allow Payment of unrelated transactions

AP/AR Netting Off Other Optional Setups

• Manage Document Sequence Categories
• NETTING Code in Payment methods will be utilized here.
• Manage Document Sequences
• Its an Ordinary Document Sequence
• Manage Standard Lookups
• It helps Netting Manager to create Settlement for multiple agreements at the same time.
• Manage Payables Lookups
• It helps controlling AP transaction to include/exclude transaction when building settlement
• Manage Standard Lookups
• It can be utilized for Netting Letter or Netting Reversal Letter emailed to Third Party

AP/AR Netting Off Process Output getting Settled

• Payables

• Receivables

Report for Analyzing AP/AR Netting Off Process for settled transactions

Path: Tools → Schedule Processes

Report Name → Netting Settlement Report

• Legal Entity
• Settlement Name

Payables - Output:

Receivables - Output: