Advanced SAP Lockbox and Cash Application Automation

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

2Is this your Cash Application Analyst?

http://www.youtube.com/watch?v=SLyu43JmlWA&feature=related

3Agenda

Review of Cash Application KPIs

Standard SAP Lockbox + Minor Enhancements

Advanced Cash Application

Key takeaway points

4Cash Application KPIs

On-Account hit rate

% of checks cleared

On-invoice hit rate

% of dollars auto-applied

5What is the true performance indicator?

% of remittance line items auto-applied (invoices & deductions) requiring NO further MANUAL processing

6How do customers Remit?

Check

Payment DetailsCash Transfer

ACH

Wires or other EFTs

Check Remittance

EDI 820 / 812

Email

Fax

Customer Websites

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

8Standard SAP + Minor Enhancements

9Solution Architecture

Process payment files from banks and customers directly into SAP

Perform matching algorithms during cash posting in SAP

10

Scenarios easily handled via standard SAP

Check


ACH

Wires or other EFTs

Check Remittance

EDI 820

Email

Fax

Customer Websites

11

Best Practice to get the Remittance Data

Check


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

12

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

13

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

14

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

15

Implementation Architecture for Check Payments

BAI2 FileLockbox Program: RFEBLB00

SAP A/R

User-Exits / BaDIs

Custom

16

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

17

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.

18

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

19

Advanced Cash Application Automation

20

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

21

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

22

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

23

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

24

Web Aggregation Technology

25

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

26

Optical Character Recognition (OCR) Technology

27

Sample Check Remittance Advice

28

Data Extraction Template

29

Load: Images to the OCR Tool

30

Recognition: Text from Images

31

Recognition: Remittance Details in Text

32

Export Recognized Data

33

OCR Output

34

Demonstration

35

Cash Application: Bank Deposit Details

Bank deposits downloaded on daily

website via a bank BAI2 file or website

Remittance header details from the Bank

Cash Application: Remittance Details

Remittance details from EDI, Web, Email and scanned checks are

captured electronically

Cash Application: Remittance from Web

Electronic capture of data from website

Original website with remittance details

Cash Application: Remittance from Email

Electronic capture of data from email

Original email with remittance details

Cash Application: Remittance from EDI

Electronic capture of data from EDI 820

Cash Application: Remittance from Check

Original check with remittance details

Electronic capture of data from check via

OCR

41

Cash Application Transformation Rules

42

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'


IF Reference field starts with XD' THEN Net amount is marked as deduction amount,Set the deduction reason code as 13'


IF Reference field starts with 'PKL' THEN Net amount is marked as deduction amount,Set the deduction reason code as 14'


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

43

Sample Rules for One Customer (Contd..)


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)

44

Sample Rules for One Customer (Contd..)


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

45

Cash Application: Payments

Payment header from bank is matched to

the remittance details

Cash Application: Transformation Rules (Example)

Remittance details before

transformation

Remittance details after

transformation


Remittance details before transformation

Remittance details after transformation




A/R Extract

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)

51

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!

http://www.highradius.com

Advanced SAP Lockbox and Cash Application Automation

Documents

gh inv

gh standalone deduction

gh invoice specific

advanced sap lockbox

cash application analyst

cash application processing

sap ecc2

gh customer reason code