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 customers 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 costbenefit 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. 1 The Bank Administration Institute defines these formats. 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 ratethe percentage of matched invoices in each transmissionis 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 customers MICR (Magnetic Ink Character Recognition) data: Bank Key = the ABA routing number (American Bankers Association) of the bank Bank Account = the customers account number at the bank

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

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 companys 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 Lockbox Account Checks In This account will be cleared out through the electronic bank statement processing into the main Lockbox account (113010). Accounts Receivable - Lockbox Unapplied Cash This account records the receipt of customer payments. Relevant Settings

113016

125310

Not tax-relevant

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

440000 700800

Over/Underpayments and Unallowed Deductions Customer Discounts

Not tax-relevant 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 Transaction code Accounting Financial Accounting Accounts Receivable Document entry Invoice-general F-22

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

Field name BLDAT BLART BUKRS BUDAT

Description Document date Type Company code Posting date Period

R./O./C

User action and values Todays date DR BP01 Todays date Current month USD 01 C2000

Comment

WAERS NEWBS NEWKO

Currency PstKy Account

3. Press Enter to continue. 4. On the Enter Customer invoice: Add Customer item screen, enter the following data: Field name WRBTR ZTERM SGTXT NEWBS NEWKO Description Amount Payt Terms Text PstKy Account R./O./C User action and values 400 NT00 30 50 410020 Comment

5. Press Enter to continue. 6. On the Enter Customer invoice: Add G/L account item screen, enter the following data: Field name WRBTR STCD TAXJURCODE Description Amount Tax code Jurisdict. Code R./O./C User action and values 400 O0 CA0000000 to save the data entered. Comment

7. You can post the invoice here. Choose 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 Transaction code Accounting Financial Accounting Banks Incomings Lockbox Import FLB2

2. On the Main Lockbox Program screen, enter the data as required. Field name Description Import into bank data storage PC upload LBOXFILE Lockbox file Procedure Input record format Invoice numbers Enhanced invoice no. check 3. Choose 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. to continue. R./O./C User action and values Select Select The txt file that you saved in the last step LOCKBOX BAI2 1 Select Comment

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 Transaction code Accounting Financial Accounting Accounts Receivable Document Display FB03

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

Field name BELNR BUKRS GJAHR

Description Document number Company code Fiscal year

R./O./C

User action and values Enter the document number of the document created in the previous step. BP01 Enter the current fiscal year

Comment

3. Choose Enter to continue. Result The financial document is displayed.