Advanced SAP Lockbox and Cash Application Automation

Is this your Cash Application Analyst? http://www.youtube.com/watch?v=slyu43jml WA&feature=related 2

Agenda Review of Cash Application KPI s Standard SAP Lockbox + Minor Enhancements Advanced Cash Application Key takeaway points 3

Cash Application KPI s On-Account hit rate % of checks cleared On-invoice hit rate % of dollars auto-applied 4

What is the true performance indicator? % of remittance line items auto-applied (invoices & deductions) requiring NO further MANUAL processing 5

How do customers Remit? Cash Transfer Payment Details Check Check Remittance ACH EDI 820 / 812 Wires or other EFTs Email Fax Customer Websites 6

Two Solution Architectures to Consider 1. Most of the Cash Application processing within SAP ECC 2. Pre-Process outside SAP and post via SAP lockbox 7

8 Standard SAP + Minor Enhancements

Solution Architecture Process payment files from banks and customers directly into SAP Perform matching algorithms during cash posting in SAP 9

Scenarios easily handled via standard SAP Cash Transfer Payment Details Check Check Remittance ACH EDI 820 Wires or other EFTs Email Fax Customer Websites 10

Best Practice to get the Remittance Data Cash Transfer Payment Details Check Check Remittance 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 ACH Wires or other EFTs EDI 820 Scenario 2: Get EDI 823 from the bank containing the EFT header data. Get EDI 820 directly from the customer 11

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 12

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 customer s 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 13

EDI: Order-to-Cash Transactions EDI Message EDI 823 SAP IDOC/Message LOCKBX lockbox file EDI 820 REMADV remittance advice EDI 810 INVOIC01 - Invoices EDI 812 DEBADV Debits EDI 821 FINSTA Bank statement 14

Implementation Architecture for Check Payments BAI2 File Lockbox Program: RFEBLB00 User- Exits / BaDI s SAP A/R 15 Custom

Implementation Architecture for ACH/Wires (EFT) EDI 823 LOCKBX IDOC Stage in Payment Advice Tables EDI 820 REMADV IDOC Insert 820 line items in staged 823 header data User-Exits / BaDI s Lockbox Program Customers SAP A/R 16 Custom

Lockbox Algorithm Modification Two Business Add-In s/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. 17

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 18

19 Advanced Cash Application Automation

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 20

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 21

Cash Application Automation Bank Customers Paper Checks Lockbox Programs Transformed Header & Item Details (BAI2 SAP A/R Cash Application Pre-Processing Engine Transformation Rules Invoice Rules Data Aggregation Payment & Remittance Walmart Deduction Rules Web OCR Email EDI 22 Customer Portals

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 23

24 Web Aggregation Technology

Web Aggregation Automate information gathering from websites Similar to vertical search engines like kayak.com, shopping.com etc Bank Lockbox UPS Web Aggregation Roadway Tracking Info / POD Customer1 Customer2 Remittance / Claims Info 25

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

Cash Application: Bank Deposit Details Bank deposits downloaded on daily website via a bank BAI2 file or website Remittance header details from the Bank 35

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 Electronic capture of data from check via OCR Original check with remittance details

41 Cash Application Transformation Rules

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 42

Rule # Rule Name Rule Description 6Combine Items 1 Sample Rules for One Customer (Contd..) IF There are two line items with same reference field THEN Add up total amount paids, Discount amount and Net Amount paids Retract one item 43 Open AR Matching Rule 1 - Short 7pay - Unknown discount Open AR Matching Rule 2 - Short 8pay less than $25 IF Reference field is a valid Invoice Number(Has a record in Open AR) AND Total 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' IF Reference field is a valid Invoice Number(Has a record in Open AR) AND Total 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 WO'

Sample Rules for One Customer (Contd..) Rule # Rule Name Rule Description IF Reference field is a valid Invoice Number(Has a record in Open AR) AND Discount taken greater than 0 AND (Discount Taken - Open AR Discount Allowed ) > $25 THEN Create a new deduction item with deduction amount equals Open AR Matching Rule 3 - Unearned (Discount Taken - Open AR Discount Allowed) 9discount Set the deduction reason code for the new deduction item as UD1' IF Reference field is a valid Invoice Number(Has a record in Open AR) AND Discount taken greater than 0 AND (Discount Taken - Open AR Discount Allowed ) < $25 THEN Create a new deduction item with deduction amount equals Open AR Matching Rule 4 - Unearned (Discount Taken - Open AR Discount Allowed) 10discount less than $25 Set the deduction reason code for the new deduction item as UD2 44

Cash Application: Payments Payment header from bank is matched to the remittance details 45

Cash Application: Transformation Rules (Example) Remittance details before transformation Remittance details after transformation

Cash Application: Transformation Rules (Example) Remittance details before transformation Remittance details after transformation A/R Extract

Cash Application: Transformation Rules (Example) Remittance details before transformation Remittance details after transformation

SAP FICO Lockbox Report Detailed report of each check and the cash application status Check application details with which invoices or accounting docs were cleared Dispute case information (if any)

Key Takeaway Points 51 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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