SAP Lockbox

A company can create ‗lockbox‘ accounts at a bank that are used as payment collection accounts for customer receivables. The company informs its customers that all payments should be submitted to one of its established bank lockbox accounts at a designated remittance address. A lockbox account is usually a designated post office box which has the company name but the customer payments are actually received by the bank.

SAP lockbox utilization results in two primary business benefits: funds collection and remittance information delivery. The major benefits are that the company is able to recognize the funds more quickly, and the customer‘s check is cashed in a more timely manner. The bank collects the payments along with the customers‘ remittance information which indicates the open items the customer is paying. Data entry clerks at the bank manually enter the information into an electronic file for transmission to the company in groups of checks called batches.

These electronic files are typically transferred nightly to the company which owns the lockbox. The files can be in one of two standard banking industry formats: BAI or BAI2. They can also be transmitted via EDI using the ANSI X.12 823 for lockbox remittances. A combination of the two is not uncommon where a BAI format is delivered within an EDI message.

Customer identification is the primary task of the initial (SAP) data processing of each lockbox payment. Finding the corresponding document clearing information is the second task. Lockbox programs RFEBLB00 for BAI and BAI2 formats and RFEBLB30 for EDI format attempt to identify the customer first by MICR number (ABA/bank account number combination) and then by invoice number. It is strongly recommended that companies maintain the bank details on their customer master records. The MICR numbers must be unique across banks configured within SAP. Additionally, the MICR and customer account number also need to uniquely identify a single customer within the system. If a customer is identified by the document number but the bank details do not correspond to the MICR number, they can be added via the optional batch input session. This allows the SAP system to ‗learn‘ customer bank accounts via repeated use of the lockbox service. Processing statistics in future lockbox remittances will greatly improve with repeated use of this option.

BAI / BAI2 Formats

The standards for lockbox transmission files are defined by the Bank Administration Institute (BAI). BAI and BAI2 are the two defined lockbox transmission formats, however, BAI is considered outdated by the BAI organization and is no longer supported. Many banks still offer BAI format. Refer to note 118470 for contact information on the BAI institute from which formal documentation can be purchased. Banks which offer lockbox services frequently supply documentation on the formats they provide.

BAI and BAI2 formats differ primarily in their level of information detail. BAI does not subtotal the incoming check line items by invoice reference. One check total amount contains all invoices listed underneath it. Consequently, in BAI format files, the entire check must match the total amount for all invoices listed or be within configured payment difference tolerances. If it does not match or fall within tolerance limits, the entire check will enter into SAP as:

1. an ―On Account‖ posting – the payment and invoice totals do not match or

2. an ―Unprocessed‖ posting – no customer account or document could be identified from the transmission via MICR or invoice identification

The accounts receivable department will have to perform manual application to clear items which have received either of the statuses above. This is accomplished in the lockbox post-processing described below.

BAI2 splits the check total into separate invoice references and corresponding payment amounts per invoice. Each record type 4 contains only one invoice. It can also contain deduction amounts as well as the external reason code for the deduction. Within a payment targeted for multiple invoices, BAI2 format files can achieve a processing status of ―Partially Applied‖ which means that some of the items within a check have been matched and cleared, and other invoices were not identified so their payment portion will be placed ―On Account‖. As a result, the hit rate or application rate percentage is higher when using BAI2 format than when using BAI format.

The decision of which format to use (given that your bank is able to supply BAI), is dictated by a cost-benefit analysis. The BAI2 format is more detailed so it costs more for the lockbox bank to enter and deliver the data. The BAI format is cheaper, but may not offer a suitable hit rate. The BAI2 format is recommended for large volume, multiple invoice payments and scenarios where deductions and short payments are taken. The BAI format is probably adequate if only a small portion of customer payments are received via lockbox transmission. In general, a high percentage of checks achieving a status of at least ‗on-account‘ is targeted to reduce the intervention by post-processing analysts and achieve an acceptable ‗cash application‘ rate.

Lockbox: Single Invoice Clearing

Overview Banks offer lockbox service to help companies process incoming check payments. A company with a lockbox account asks its customers to send check payments directly to the bank. The bank processes the payment and transits the payment data electronically to the company in the BAI2 format. The information in this file is matched to the accounts receivable information in the R/3 system to clear the payments against the open items.

The Bank Administration Institute defines these formats.1 In practice, the standards published by this

organization are not followed strictly. Banks usually offer several variations of each format, including the BAI and BAI2 formats that R/3 reads.

The BAI2 format is newer and contains more information than the BAI format. The main difference between the two formats is the invoice information associated with each check.

BAI Check, amount, invoice, invoice,...

BAI2 Check, amount, invoice_and_amount, invoice_and_amount, ...

The extra information on the BAI2 format allows better automatic matching of payments to customer open items when the data is imported. If automatic matching fails, your accounts receivable (A/R) clerk must manually clear the payments against open items.

When importing a BAI format file, unless the check amount matches exactly the total open invoice amount in R/3 (or within configured payment difference tolerances), none of the invoices clear and the entire check enters R/3 either as an:

“On account” posting (if the payment and invoice totals do not match)

“Unprocessed” posting (if no customer account and no documents could be identified)

With BAI2 format files there is also a ―partially applied‖ status. A check is partially applied when the import program can match and clear some, but not all, of the invoices within the check total. As a result, the hit rate—the percentage of matched invoices in each transmission—is higher with BAI2 than with BAI.

Customer Master Data

The following fields need to be maintained in the customer master record in order to be able to use lockbox processing for this customer:

Bank DetailsHere you maintain the customer’s MICR (Magnetic Ink Character Recognition) data:

Bank Key = the ABA routing number (American Bankers Association) of the bank

Bank Account = the customer’s account number at the bank

1 You may contact the Bank Administration Institute by phone at 800-224-9889, or visit their web site at http://www.bai.org.

Alternative Payer If a different customer pays the bills, you would enter the customer number of the paying customer in the Alternative payer field.

Lockbox It is optional to assign a lockbox number to the customer master record. This indicator is accessed during customer billing in SD. The remit-to address on the invoice will use the address from the lockbox bank instead of the company‘s address. Lockbox ID 10 is maintained in the configuration.

General Ledger Accounts

Lockbox processing uses the following G/L accounts. There are field settings that have been maintained to enable proper A/R lockbox functioning.

G/L Account

Description Relevant Settings

113016 Lockbox Account – Checks In This account will be cleared out through the electronic bank statement processing into the main Lockbox account (113010).

125310 Accounts Receivable - Lockbox Unapplied Cash

This account records the receipt of customer payments.

Not tax-relevant

Relevant to cash flow (to allow payments to clear items across an alternate payer worklist)

440000 Over/Underpayments and Unallowed Deductions

Not tax-relevant

700800 Customer Discounts Not tax-relevant

Purpose This scenario describes the creation of accounts receivable invoices and simulates the creation of a lockbox file and its subsequent processing.

Prerequisite A customer master record is required for this process. Ensure that the customer has valid bank details and has lockbox 10 assigned. The remit-to address on the invoice will use the address from the lockbox bank instead of the company's address. Customer C2000 has been created in the installation process.

Enter Accounts Receivable Invoices Post an invoice to customer C2000. Note down the amounts and document numbers.

Procedure

1. Access the transaction using:

Menu Accounting Financial Accounting Accounts Receivable

Document entry Invoice-general

Transaction code F-22

2. On the Enter Customer Invoice: Header Data screen, enter the following data:

Field name Description R./O./C User action and values Comment

BLDAT Document date Today‘s date

BLART Type DR

BUKRS Company code BP01

BUDAT Posting date Today‘s date

Period Current month

WAERS Currency USD

NEWBS PstKy 01

NEWKO Account C2000

3. Press Enter to continue.

4. On the Enter Customer invoice: Add Customer item screen, enter the following data:

Field name Description R./O./C User action and values Comment

WRBTR Amount 400

ZTERM Payt Terms NT00

SGTXT Text 30

NEWBS PstKy 50

NEWKO Account 410020

5. Press Enter to continue.

6. On the Enter Customer invoice: Add G/L account item screen, enter the following data:

Field name Description R./O./C User action and values Comment

WRBTR Amount 400

STCD Tax code O0

TAXJURCODE Jurisdict. Code CA0000000

7. You can post the invoice here. Choose to save the data entered.

8. Make a note of the document number.

Maintain Lockbox File

Use

In a productive environment, the bank will provide the lockbox file with the relevant payment information formatted in the BAI2 standard. For the purposes of this example, you will manually edit the lockbox file.

Prerequisites

A customer invoice must be created.

Procedure

1. Open the file YPCC_BAI2_00.TXT from the CD (which is available in the Misc folder under Baseline_US).

2. Edit the following highlighted (in bold) text:

100YPCCDESTINYPCCORIGIN0310080030

2IGNOREDBYSAP0000000000

58660010012345031008YPCCDESTINYPCCORIGIN

686600200000400000110003900345205865345205867

4866003601918000014 00000400000000000000

786600400123450310080010000040000

8866005001234503100800010000040000

9000000

In the above example:

In the first line, replace the string after YPCCORIGIN, that is 031008 with your current date and

0030 with your current time.

In the third, sixth, and seventh lines, replace the highlighted text with your current date in the format YYMMDD.

In the fifth line, replace the invoice number with your invoice number.

3. Save the file to your hard drive with another name.

Result

The payment information is entered into the lockbox in the BAI2 format.

Import the Lockbox File

Use

Execute the lockbox import program to upload the file and import it into the system. This action generates a posting where the customer invoices get cleared and your cash lockbox account gets debited.

Procedure

1. Access the transaction using:

Menu Accounting Financial Accounting Banks Incomings

Lockbox Import

Transaction code FLB2

2. On the Main Lockbox Program screen, enter the data as required.

Field name Description R./O./C User action and values Comment

Import into bank data storage

Select

PC upload Select

LBOXFILE Lockbox file The txt file that you saved in the last step

Procedure LOCKBOX

Input record format BAI2

Invoice numbers 1

Enhanced invoice no. check

Select

3. Choose to continue.

Result

The Post Bank Statement/Check Display List is displayed. The document number containing the financial postings is displayed on the report. Make note of the document number as you will use it in the next process.

Display Document

Use

You can display the financial document to verify that the postings were made, and the accounts were updated.

Procedure

1. Access the transaction using:

Menu Accounting Financial Accounting Accounts Receivable

Document Display

Transaction code FB03

2. On the Display Document: Initial Screen, enter the data as required.

Field name Description R./O./C User action and values Comment

BELNR Document number Enter the document number of the document created in the previous step.

BUKRS Company code BP01

GJAHR Fiscal year Enter the current fiscal year

3. Choose Enter to continue.

Result The financial document is displayed.