Managing Bilateral Netting

This chapter provides an overview of bilateral netting, discusses the prerequisite tasks, and discusses how to:

• Set up bilateral nets.

• Select nets automatically.

• Create nets manually.

• Adjust manually netted information.

• Administer nets.

• Process multicurrency nets.

• Close nets.

• Inquire on netting information.

Understanding the Bilateral Netting Process

Bilateral netting is a process by which two parties—vendor and client to each other—reduce or aggregate the overall number of transactions between them. This decreases actual transaction volume between the two parties. It also decreases the amount of accounting activity and associated business costs (for example, banking fees).

This chapter discusses how to configure, define, and process netting transactions. You can:

• Select the vendors and customers involved in a netting relationship.

• Define the rules, contracts, sequence order, and settlement method of a net.

• Generate inquiries and reports on your netting data.

There are two netting closing methods: partial and full.

• In partial netting, all items are netted to zero (0), and no payment or receipt of funds is done. You must run Pay Cycle Manager to make any adjustments or changes to the vouchers. Any voucher or item balance that is remaining is handled separately in Payables or Receivables.

  Only the matching balance is paid off during partial netting, leaving some receivables items or payables items open. For example, if the total amount of all payables items participating in a netting cycle is more than the total amount of all receivables items, all receivables items are paid (or closed). The total amount applied to the receivables items is then used to pay individual payables items until this amount reaches zero. Likewise, if the total amount of all receivables items participating in a netting cycle is higher than the total amount of all payables items, all the payables items are paid. The total amount applied to the payables items is then used to pay individual receivables items until this amount reaches zero.

• With full netting, you pay or receive all voucher items that are due.

  During full netting processing, all receivables and payables items participating in the netting cycle are paid, and a new item is created for the remaining balance. This means that if the total amount of all payables items participating in any one netting cycle is more than the total amount of all participating receivables items, the system automatically creates a new receivables item (an invoice). If the total amount of all receivables items is more than the total amount of all payables items, the system creates a new payables item (a voucher).

Note. PeopleSoft delivers and supports only partial bilateral netting functionality. However, you can adapt the application to handle full bilateral netting functionality (though PeopleSoft will not support this configuration). In addition, when using full bilateral netting functionality, you can also optionally activate the value added tax (VAT) functionality to calculate VAT transactions.

Here is an example of partial bilateral netting:

Company A is both a client and a vendor of Company B and holds Accounts Payable (AP) and Accounts Receivable (AR) line items in relation to Company B. The two companies set up a contractual netting relationship, modifying their typical accounting, to enter into this protocol. They agree on particular intervals to conduct netting and zero out their respective accounts.

Company A’s books contain the following line-item amounts:

Without netting, Company A would have conducted four transactions to address the two Accounts Payable and two Accounts Receivables line items. Instead, their single outstanding balance to pay off and zero out after processing is 150. Using this example, Company B’s books would be a mirror image of Company A’s.

This is a simple example, but if there are hundred or thousands of transactions happening between organizations, there can be a considerable decrease in transactional activity and attendant fees. This graphic illustrates the bilateral netting process.

Overview of the bilateral netting process

See Also

Running Document Tolerances

Processing Pay Cycles

Bilateral Netting

Prerequisites

Before using netting, you must define your:

• General Ledger business units.

• Payables Vendors, Vendor IDs, and business units.

• Receivables Customer IDs and business units.

• Market rates and netting account currency codes, to facilitate multicurrency netting.

• Netting accounts.

In addition, before defining a bilateral netting relationship, you must set up the following in Payables and Receivables:

1. Enter a voucher on the Vouchers page in Payables.

2. Enter an invoice on the Online Pending Item Entry page in Receivables or interface an invoice from your billing application into Receivables.

3. Run the Receivables Update process (AR_UPDATE) using the Receivables Update page.

See Also

Defining Netting Accounts

Defining General Ledger Business Units

Running Receivable Update

Common Elements in this Chapter

See Also

Understanding the Bilateral Netting Process

Setting Up Bilateral Nets

To define netting information, use the following components:

• Netting Contracts component (NET_CONTRACT_GBL).

• Netting Exclusion Parameters component (NET_EXCL_PARM_GBL).

• Netting Participants component (NET_PARTICIPANT_GBL).

• Netting Rules component (NET_NETTING_RULES_GBL).

This section discusses the steps to set up bilateral nets:

1. Define participant relationships.

2. (Optional) Add multiple vendors.

3. (Optional) Add multiple customers.

4. Define netting rules with SQL statements.

5. Enter primary information for netting contracts.

6. Enter settlement information for netting contracts.

7. Define voucher netting exclusion parameters.

Understanding Voucher Netting Exclusion

You can define parameters to exclude certain vouchers from payment. The netting exclusion functionality is built to accommodate certain US Federal Government requirements on voucher payments (JFMIP requirement PMC-31, “...allow for the exclusion of payments from agency offset based on user-defined criteria including funding source, object class, vendor type, and vendor number.”), but any organization can use this feature to exclude vouchers from netting, based on defined parameters. Though you generally define netting exclusion parameters during the setup phase of voucher payment implementation, you can create or modify these definitions at any time.

This functionality also takes advantage of PeopleSoft's ChartField Utility process. As ChartFields can be renamed, and made active or inactive, the setup of these user-defined parameters is dynamic to enable you to select the appropriate chartfield fieldname and its corresponding values. In addition, you can define multiple sets of exclusion parameters, by defining multiple rows per Exclusion ID, and/or defining multiple Exclusion IDs.

Values entered on the Netting Exclusion Parameters page are stored and used at voucher save time to determine if the voucher should be excluded from the netting process between Payables and Receivables. If an exclusion parameter definition has been created, and a payment falls within the exclusion and effective date parameters, then the payment is excluded from the Payables and Receivables netting process and paid in full. (The system changes the internal voucher netting value to N to indicate the voucher is not applicable to netting.) This applies to payments created normally through the PeopleSoft Pay Cycle process.

Though the Exclude from Netting Parameters and the Netting Rule Definition pages share a similar purpose—defining rules or parameters for the voucher netting process—their results are different. The netting exclusion functionality excludes matching vouchers from payment by setting the internal netting flag to N (not applicable for netting). The netting rules functionality excludes vouchers based on the criteria defined in the rules.

Note. Netting exclusion parameters apply to the entire voucher—not just a particular part of the voucher. If a single data element (or “piece”) of a voucher meets the exclusion requirements, the entire voucher is excluded. For example, if a voucher has 100 lines with 200 distributions, and only one distribution qualifies for netting exclusion. In this scenario, the entire voucher and payment schedule—all 200 distributions—is excluded from netting.

See Also

Establishing Pay Cycles

Processing Pay Cycles

Prerequisites

To use the Exclude from Netting functionality with vouchers, you must do the following:

• Define vendors as “netting vendors,” using the Apply Netting option on the Vendor Information - Payment Options page.

• Create vouchers using defined netting vendors.

See Also

Scheduling and Creating Voucher Payments

Pages Used to Set Up Bilateral Nets

Defining Participant Relationships

Access the Netting Participants page.

GL Unit (General Ledger business unit)

For reporting purposes, you must select the unit that is targeted by these transactions, because the transactions affect balances at the general ledger level.

Vendors

Customers

Adding Multiple Vendors

Access the Add Multiple Vendors page.

Add Vendors From	Specify a business unit from which to select vendors.
Add Vendors	Select vendors and click this button to add them as participants.

Adding Multiple Customers

Access the Add Multiple Customers page.

Add Customers From	Specify a business unit from which to select customers.
Add Multiple Customers	Select customers and click this button to add them as participants.

Defining Netting Rules with SQL Statements

Access the Netting Rules page.

Receivable SQL and Payable SQL	Enter the appropriate SQL statements to set up the mechanics of the net, and to further define and/or limit which open items are selected. For example: “where I.DEPARTMENT equals ‘ABC.’”
	Click to add comments regarding SQL statements for the respective (Receivable or Payable) edit box.

Entering Primary Information for Netting Contracts

Access the Netting Contracts - Primary Information page.

Primary Information

See Also

Defining Participant Relationships

Defining Netting Rules with SQL Statements

Defining Financial Contacts

Entering Settlement Information for Netting Contracts

Access the Netting Contracts - Settlement Information page.

Netting Bank SetID	Assign a netting SetID; then select the Bank and Account for the netting activities. The netting bank is a virtual bank account: no funds are actually paid into or out of the netting account. It is debited and credited by the netted amount of the AP and AR transactions.
Disb Bank SetID(disbursement bank setID)	Select from the available external banks, and specify the settle through Bank and Account.
Vendor SetID	Assign a vendor SetID. In the Vendor field, designate the vendor involved in the net and assign a Location and Seq Nbr (sequence number). You enter the vendor ID and sequence number to associate the default bank with that vendor (this is required to support certain payment methods).
Payment Method	For the Payables group box, specify if payments are submitted by Automated Clearing House, Direct Debit, EFT, Manual Check, System Check, or Wire Report. For the Receivables group box, specify if payments are received by Check (Check, EFT, etc.), Direct Debit , or Draft.
Sequence	Select the order in which balances will net, either: By Account Date (FIFO) (first in first out), By Accounting Date (LIFO) (last in first out), By Due Date (FIFO), By Due Date (LIFO), By Voucher, Highest Gross Balance, or Smallest Gross Balance.
Deposit Unit	Define which business unit will receive payment after the net.
	Click View Netting Account to view detailed information for the specified netting account.
	Click View Disbursement Bank to view detailed information for the specified external bank account.
	Click View Vendor Bank to view detailed information for the vendor location.

Excluding Vouchers from Netting

Access the Netting Exclusion Parameters page.

Select the parameter for excluding the voucher.

When you select Vendor ID, also specify a Vendor name and optionally, a Location.

When you select Vendor Classification, also select a Classificationoption of Attorney, Employee, HRMS, or Supplier.

In the ChartField Exclusion Parameters region, specify a ChartField and corresponding value on which to base the netting exclusion.

Note. You can only specify one value per defined ChartField name.

Selecting Nets Automatically

Define processing parameters and automatically select your nets using the Automatic Netting Selection process (TR_NET_ASEL).

Pages Used to Automatically Select Nets

Generating the Automatic Netting Selection Process

Access the Automatic Netting Selection page.

Contracts for this Schedule	Click to access the Review Netting Contracts page, and view all contracts associated with the specified Schedule ID.
Netting Inquiry	Click to access the Netting Inquiry page, and view information for the associated Netting Reference ID.

When the Automatic Netting Selection process is complete, use the Review Multiple Netting page to verify and modify the netted information.

See Also

PeopleTools PeopleBook: PeopleSoft Process Scheduler

Administering Nets

Creating Nets Manually

This section discusses how to:

1. Enter primary netting information.

2. Define the settlement instructions.

3. Set up the payables leg.

4. (Optional) Add multiple vouchers to the payables leg.

5. Set up the receivables leg.

6. (Optional) Add multiple items to the receivables leg.

Common Elements in this Section

Pages Used to Manually Create Nets

Entering Primary Information

Access the Manual Select Netting - Manual Selection page

Netting Date	Displays the effective date of the net.
Netting Currency	Select a netting currency. The system converts all amounts and displays them in this defined netting currency.
Base Currency	Displays the base currency of the selected GL Unit.
Submit	Click to submit the net. Note. Prior to submitting the net, you must complete the other pages in this component.

Defining Settlement Instructions

Access the Manual Select Netting - Settlement Instructions page.

Netting Bank	Click to select your netting bank SetID, and specify the bank and account.
Disbursement Bank	Click to select your disbursement bank ID, and specify the bank and account.
Vendor Bank	Click the link to select your vendor bank ID. Enter the Vendor, Location, and Sequence Nbr (sequence number).
Payment Method-Payable	Select Automated Clearing House, Direct Debit, EFT, Manual Check, System Check, or Wire Report.
Payment Method-Receivable	Select Check, Direct Debit, or Draft.
Deposit Unit	Define which business unit will receive payment after the net.

See Also

Entering Settlement Information for Netting Contracts

Setting Up the Payables Leg

Access the Manual Select Netting - Payables page.

	Click Voucher Detail to access the Payables Voucher Detail page and view information for the voucher line item.
Refresh	When you are finished entering payable transaction items, click to update Total Payment Amount.

Adding Multiple Vouchers to the Payables Leg

Access the Enter Manual Selection - Add Multiple Vouchers page.

After you enter a business Unit and Vendor ID, select each voucher that you want to add and click Add.

Setting Up the Receivables Leg

Access the Manual Select Netting - Receivables page.

	Click Show Item Detail to access the Receivables Item Maintenance page, and view information for the receivables line item.
Refresh	When you are finished entering receivable transaction items, to update Total Receipt Amount.

Adding Multiple Items to the Receivables Leg

Access the Enter Manual Selection - Add Multiple Items page.

After you enter a business Unit and Customer ID, select each item that you want to add and click Add.

Adjusting Manually Netted Information

After creating manual bilateral nets you’ll need to maintain them. Depending on your User ID and security settings, you can edit certain enabled fields on each page. These pages are similar to the manual net creation procedure pages.

This section discusses how to:

1. Adjust manual net information.

2. Adjust settlement instructions.

3. Adjust payables voucher information.

4. Adjust receivables item information.

See Also

Creating Nets Manually

Common Elements Used in This Section

Pages Used to Adjust Manually Netted Information

Adjusting Manual Net Information

Access the Adjust Netting - Manual Adjustment page.

Process Type

Indicates whether the net was processed by either Automatic or Manual method.

Netting Results Payable

The system calculates the amounts based on the transaction entries on the Payables page.

Netting Results Receivable

The system calculates the amounts displayed based on the transaction entries on the Receivables page.

See Also

Creating Nets Manually

Adjusting Settlement Instructions

Access the Adjust Netting - Settlement Instr page.

See Also

Entering Settlement Information for Netting Contracts

Adjust Payables Voucher Information

Access the Adjust Netting - Payables page.

Note. You can only add transaction items—you can’t delete existing or added transactions.

See Also

Setting Up the Payables Leg

Adjust Receivables Item Information

Access the Adjust Netting - Receivables page.

Note. You can only add transaction items—you can’t delete existing or added transactions.

See Also

Setting Up the Receivables Leg

Processing Multicurrency Nets

This section gives an overview of the multicurrency netting functionality, and discusses how to process this net type.

Multicurrency Netting Functionality

PeopleSoft netting includes functionality to automatically adjust netted non-base currency accounting entries to ensure that the netting bank entries are in balance. This functionality requires that you setup certain pages and currency default values.

Once you have established the necessary currency codes, no further input is required—the system automatically evaluates and adjusts the necessary netting accounting entries.

The amount adjustment functionality happens between in the Netting Close process (TR_NET_CLOSE), which the system calls from the Pay Cycle Selection process (AP_PAYSELECT). The Net Close process analyzes if voucher and item accounting entries meet certain criteria, for example, if netting currency is greater than or less than the base currency. If the entries match the criteria, the Net Close process adjusts them by updating the AR (PAYMENT_ITEM) and AP (PAYMENT_VCHR_XREF, VOUCHER, VOUCHER_LINE, DISTRIB_LINE) information prior to AP and AR posting. As posting creates accounting entries, the netting adjustment occurs prior to posting to avoid the additional work of accounting entry adjustment.

Here is an example of the netting adjustment functionality when the net involves Japanese yen (JPY) and United States dollars (USD):

• Netting Base Amount = 10000 JPY.

• Netting Foreign Amount = 100 USD.

• Rate = 100 JPY/USD.

• Summarized receivables amount for netting = 100 USD (10001 JPY).

• Summarized payables amount for netting = 100 USD (9999 JPY).

Given the above, the system calculates that:

• The Netting Base Amount of 10000 JPY is less than the receivables amount of 10001 JPY, and subtracts 1 JPY from the receivables total.

• The Netting Base Amount of 10000 JPY is greater than the payables amount of 9999 JPY, and adds 1 JPY to the payables total.

Prerequisites

If you are netting bank accounts that are defined with different currencies, you must ensure that:

• You have established an exchange rate between two different currency codes on the Market Rates page.

• You have established as many valid currencies as needed by the specific netting bank account on the Netting Accounts - Valid Currencies (BANK_ACCT_CURR_SEC) page. For example, if you are netting between two accounts—one using JPY, one using USD—you must define both JPY and USD as valid currencies for both accounts.

See Also

Defining Market Rates

Defining Netting Accounts

Processing Multicurrency Nets

To process multicurrency nets:

1. For the AP Voucher Entry confirm that:

   • You define the Curr (currency) field on the Invoice Information page with the convert into currency.

   • You define the Payment Currency field on the Invoice Information - Payments: Payment Options page with the convert into currency.

2. Approve the AP Voucher, but do not post it.

3. For the AR Item Entry confirm that:

   • You define the Control Currency field on the Group Control page with the convert into currency.

   • You define the Currency field on the Pending Item 1 page with the convert into currency.

4. Post the AR vouchers using the Group Control - Group Action page. (You can post AR vouchers as they are not evaluated by the Net Close process.)

5. Run the Receivable Update process (AR_UPDATE).

6. Create a manual net using the Manual Netting pages, being sure to define the Netting Currency field with the convert into currency. When you complete creating the manual net, click Submit.

7. Approve the multicurrency net using the Review Multiple Netting page.

8. Establish voucher payment selection criteria for the pay cycle using the Payment Selection Criteria page.

9. Process the pay cycle and create the payment using the Pay Cycle Manager page.

10. Post the voucher using the Payment Posting Request page.

11. Run the Receivable Update process (AR_UPDATE) again to close the receivables nets.

12. Review the resulting accounting entry and payment information on the following pages:

    • (AP) Voucher Accounting Entries

    • (AR) Group Control - Accounting Entries

    • Payment Control - Accounting Entries

Note. Remember that any AP vouchers posted before the netting close process do not encounter the rounding analysis of the netting adjustment process. Their associated accounting entries will not be adjusted.

See Also

Administering Nets

Creating Nets Manually

Closing Nets

Entering Invoice Information for Online Vouchers

Running Voucher and Payment Posting

Reviewing Voucher Information

Entering Pending Items

Posting and Unposting Groups

Entering Pending Items

Changing and Reviewing Item Information

Administering Nets

This section discusses how to:

• Approve nets.

• Cancel nets.

Pages Used to Administer Nets

Approving Nets

Access the Approve Netting page.

Search	Specify search criteria and click the button to retrieve data on multiple nets. Your results appear in the Selected Nets grid.
Status	Select from Approved, Cancelled, Closed, or Open.
Reference	Click the link to access the bilateral netting pages, and modify transaction information.
	Click to adjust the selected net.
Select	Select an item’s check box, then approve or cancel net. The selected net(s) status changes to Approved or Cancelled. Once netting contracts are approved, they are “locked” and can’t be edited. Select Re-Open to unlock approved netting contracts for modifications.

Canceling Nets

Access the Cancel Netting page.

Page fields and functionality are similar to those discussed in Administering Nets—but here you can only cancel nets with an Open Status.

See Also

Administering Nets

Closing Nets

Once you select (by manual or automatic methods) and approve nets, you close them in both Payables and Receivables.

You close payables nets by creating payment selection criteria and running Pay Cycle Manager. If there is any remaining payables net balance (balance is less than or greater than zero), you must create a new payment selection criteria and run Pay Cycle Manager again.

To close receivables nets, you must run the Request Receivables Update process, which updates the customer information with the invoice netting payment created in the netting process.

The Net Closing Process also contains the multicurrency net adjustment functionality. For nets involving multiple currencies this functionality evaluates if the payables and receivables accounting entries are in balance, given a defined currency conversion rate. The system then automatically adjusts them as necessary prior to payables and receivables posting.

See Also

Multicurrency Netting Functionality

Running Document Tolerances

Bilateral Netting

Understanding the Net Closing Process in Pay Cycle Manager

Here is a more detailed look at the Netting Closing Application Engine processes, (TR_NET_CLOSE) and (TR_NET_ARCLS), which launch from Pay Cycle Manager (AP_APY2015). These processes close the netting population of the AR and AP transactions that are selected for netting. Closing refers to updating the transactions in the netting tables as well as updating transactions in the AP and AR tables. Inserts are done in certain situations. (For example, if an AP payment is greater than the AR balance, PeopleSoft will insert a new line in AP for the remaining balance not offset by the receivable amount.) This graphic illustrates the process:

Netting closing processes launched from Pay Cycle process

Inquiring on Bilateral Nets

You can inquire on your bilateral netting contract and relationship information.

Pages Used to Inquire on Bilateral Nets