Advanced SAP Lockbox and Cash Application Automation
Transcript of Advanced SAP Lockbox and Cash Application Automation
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1Advanced SAP Lockbox and Cash Application Automation
Copyright 2011, HighRadius Corporation. All rights reserved.
June 15th, 2011
Presented By: Sashi Narahari President & CEO HighRadius Corporation
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2Is this your Cash Application Analyst?
http://www.youtube.com/watch?v=SLyu43JmlWA&feature=related
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3Agenda
Review of Cash Application KPIs
Standard SAP Lockbox + Minor Enhancements
Advanced Cash Application
Key takeaway points
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4Cash Application KPIs
On-Account hit rate
% of checks cleared
On-invoice hit rate
% of dollars auto-applied
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5What is the true performance indicator?
% of remittance line items auto-applied (invoices & deductions) requiring NO further MANUAL processing
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6How do customers Remit?
Check
Payment DetailsCash Transfer
ACH
Wires or other EFTs
Check Remittance
EDI 820 / 812
Email
Fax
Customer Websites
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7Two Solution Architectures to Consider
1. Most of the Cash Application processing within SAP ECC
2. Pre-Process outside SAP and post via SAP lockbox
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8Standard SAP + Minor Enhancements
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9Solution Architecture
Process payment files from banks and customers directly into SAP
Perform matching algorithms during cash posting in SAP
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Scenarios easily handled via standard SAP
Check
Payment DetailsCash Transfer
ACH
Wires or other EFTs
Check Remittance
EDI 820
Email
Fax
Customer Websites
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Best Practice to get the Remittance Data
Check
Payment DetailsCash Transfer
ACH
Wires or other EFTs
Check Remittance
EDI 820
Scenario 1: Get BAI2 from the bank containing both
check header and item data. Note that you will have to engage the bank to key-in
line item data
Scenario 2: Get EDI 823 from the bank containing the EFT
header data. Get EDI 820 directly from the customer
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What is BAI/BAI2?
Originally developed by Bank Administrative Institute (BAI) in 1971
BAI was the initial format. But can only capture check header level data. Not good enough to auto-clear invoices
BAI2 developed in 1982 is the new format that can capture both header and remittance line items
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Sample BAI2 File from Bank
10070080000 70080000 0804292251 ------- this has date and time stamp 5800000222 08042970080000 70080000 lockbox number, date, bank account information 6001001000059000076070012 5858585 010152512 6 record has check amt 400100156011800000037 00001200000000000000GH Inv No & Inv amount 400100156011800000038 00001400000000000000GH 400100156011800000039 00001600000000000000GH 400100156091800000040 00001800000000000000GH 40010015601 00000000000000010000GH - standalone deduction 6001001000067000076070012 5858585 010153512 customers Routing /Account number 400100156011800000041 00001400000000010000GH customer reason code 400100156011800000042 00001600000000000000GH 400100156011800000043 00001800000000000000GH 400100156091800000044 00002000000000000000GH 40010015601 00000000000000010000GH 6001001000075000076070012 5858585 010154512 400100156011800000045 00001600000000010000GH- invoice specific deduction 400100156011800000046 00001800000000000000GH 400100156011800000047 00002000000000000000GH 400100156091800000048 00002200000000000000GH 40010015601 00000000000000010000GH 8000000222 08042900030002010000 trailer record with batch amount for that day 9999900
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EDI: Order-to-Cash Transactions
EDI Message SAP IDOC/Message
EDI 823 LOCKBX lockbox file
EDI 820 REMADV remittance advice
EDI 810 INVOIC01 - Invoices
EDI 812 DEBADV Debits
EDI 821 FINSTA Bank statement
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Implementation Architecture for Check Payments
BAI2 FileLockbox Program: RFEBLB00
SAP A/R
User-Exits / BaDIs
Custom
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Implementation Architecture for ACH/Wires (EFT)
EDI 823
Lockbox Program
SAP A/R
EDI 820
LOCKBX IDOC
Stage in Payment Advice
Tables
REMADV IDOC
Insert 820 line items in staged 823 header data
Customers
Custom
User-Exits / BaDIs
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Lockbox Algorithm Modification
Two Business Add-Ins/User Exits for standard SAP lockbox program
EXIT_RFEBLB20_001
Called exactly once per check, immediately before payment advice is created
EXIT_RFEBLB20_002
Called for each invoice being paid by check. Can change fields such as customer number, company code, invoice number, document number, reason code etc.
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Conclusions
When to consider standard SAP + Minor Enhancements?
High volume of customers :
Pay via check & bank is keying in remittance details
Pay via ACH & provide EDI 820 for remittance details
Invoice matching rules are relatively simpler such as reference number based matching that can be implemented via lockbox user-exits
Not too many customer-specific rules
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Advanced Cash Application Automation
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When to Consider?
Customers provide remittance details in myriad of forms: EDI 820, customer websites, email, check remittance, fax etc
High volume of check remittance due to which bank keying fees is too high
High volume of deductions and lack of standardization across customers
Complex rules required to increase hit-rate
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Solution Architecture
Pre-Process payment files from banks and customers outside of SAP
Perform matching algorithms outside of SAP
Send a cleansed & transformed file to standard SAP lockbox to auto-apply
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Cash Application Automation
Customers
Walmart
Paper Checks
Payment & Remittance
Bank
Customer Portals
Transformed Header & Item Details (BAI2
Invoice Rules
Deduction Rules
Cash Application Pre-Processing Engine
Transformation Rules
Email
Web
OCR
Data Aggregation
EDI
Lockbox Programs
SAP A/R
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First things first: Electronic Data Capture
EDI Process EDI 820/812 data from customers
Process BAI/BAI2/EDI 823 data from banks
Website / Portals Auto-login via Web Aggregation technology to customers
websites/portals and sweep data
Emails Email parsing agents to pull attachments and parse data
Paper Optical Character Recognition (OCR) to parse check and remittance
data
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Web Aggregation Technology
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Web Aggregation
UPS
Roadway
Web Aggregation
Customer1
Tracking Info / POD
Remittance / Claims Info
Customer2
Automate information gathering from websites
Similar to vertical search engines like kayak.com, shopping.com etc Bank
Lockbox
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Optical Character Recognition (OCR) Technology
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Sample Check Remittance Advice
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Data Extraction Template
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Load: Images to the OCR Tool
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Recognition: Text from Images
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Recognition: Remittance Details in Text
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Export Recognized Data
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OCR Output
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Demonstration
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Cash Application: Bank Deposit Details
Bank deposits downloaded on daily
website via a bank BAI2 file or website
Remittance header details from the Bank
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Cash Application: Remittance Details
Remittance details from EDI, Web, Email and scanned checks are
captured electronically
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Cash Application: Remittance from Web
Electronic capture of data from website
Original website with remittance details
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Cash Application: Remittance from Email
Electronic capture of data from email
Original email with remittance details
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Cash Application: Remittance from EDI
Electronic capture of data from EDI 820
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Cash Application: Remittance from Check
Original check with remittance details
Electronic capture of data from check via
OCR
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Cash Application Transformation Rules
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Sample Rules for One Customer
Rule # Rule Name Rule Description
1Deduction ReasonCode Mapping 1
IF Reference field starts with LDF' THEN Net amount is marked as deduction amount,Set the deduction reason code as 12'
2Deduction ReasonCode Mapping 2
IF Reference field starts with XD' THEN Net amount is marked as deduction amount,Set the deduction reason code as 13'
3Deduction ReasonCode Mapping 3
IF Reference field starts with 'PKL' THEN Net amount is marked as deduction amount,Set the deduction reason code as 14'
4Deduction ReasonCode Mapping 4
IF Reference field starts with 'RV' THEN Net amount is marked as deduction amount,Set the deduction reason code as 15'
5Data Massaging Rule 1
IF Reference field starts with 'SH' THEN Replace 'SH' with 19
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Sample Rules for One Customer (Contd..)
Rule # Rule Name Rule Description
6Combine Items 1
IF There are two line items with same reference field THEN Add up total amount paids, Discount amount and Net Amount paidsRetract one item
7Open AR Matching Rule 1 - Short pay - Unknown discount
IF Reference field is a valid Invoice Number(Has a record in Open AR)ANDTotal amount paid is less than Open AR Invoice Amount AND (Invoice Amount - Total Amount paid) > $25 THEN Create a new deduction item with deduction amount equals (Invoice amount - Total Amount Paid) Set the deduction reason code for the new deduction item as UN'
8Open AR Matching Rule 2 - Short pay less than $25
IF Reference field is a valid Invoice Number(Has a record in Open AR)ANDTotal amount paid is less than Open AR Invoice Amount AND (Invoice Amount - Total amount paid)
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Sample Rules for One Customer (Contd..)
Rule # Rule Name Rule Description
9Open AR Matching Rule 3 - Unearned discount
IF Reference field is a valid Invoice Number(Has a record in Open AR)ANDDiscount taken greater than 0AND (Discount Taken - Open AR Discount Allowed ) > $25 THEN Create a new deduction item with deduction amount equals (Discount Taken - Open AR Discount Allowed) Set the deduction reason code for the new deduction item as UD1'
10Open AR Matching Rule 4 - Unearned discount less than $25
IF Reference field is a valid Invoice Number(Has a record in Open AR)ANDDiscount taken greater than 0AND (Discount Taken - Open AR Discount Allowed ) < $25 THEN Create a new deduction item with deduction amount equals (Discount Taken - Open AR Discount Allowed) Set the deduction reason code for the new deduction item as UD2
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Cash Application: Payments
Payment header from bank is matched to
the remittance details
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Cash Application: Transformation Rules (Example)
Remittance details before
transformation
Remittance details after
transformation
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Cash Application: Transformation Rules (Example)
Remittance details before transformation
Remittance details after transformation
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Cash Application: Transformation Rules (Example)
Remittance details before transformation
Remittance details after transformation
A/R Extract
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Cash Application: Transformation Rules (Example)
Remittance details before transformation
Remittance details after transformation
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Detailed report of each check and the
cash application status
SAP FICO Lockbox Report
Check application details with which invoices or accounting docs were
cleared
Dispute case information (if any)
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Key Takeaway Points
Carefully evaluate which is the right option for you: Process everything within SAP or Pre-Process & Post in SAP
Trade-off is a function of the following factors: Do most of your customers provide remittance via Check
Remittance or EDI 820?
Are the bank fees reasonably affordable for data keying?
Are the matching algorithm rules relatively simple or you need complex and/or several customer-specific rules?
Is the deduction volume high and there is lack of standardization across customers on how they deduct?
Last but not the least: Cash Application Automation is an ongoing project!
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http://www.highradius.com