Lock Box implementation for unique customer use case

Objective: This Article explains the implementation and use case of Lockbox functionality

Business need for implementing Lockbox for incoming check payments

 

• Elimination of manual scanning and manual processing of incoming checks resulting in processing error and delay

 

• Manual reversal of dis-honored or voided checks is time consuming, labor intensive and also results in overhead incurred from bank charging additional fee

 

• Unable to have clear visibility on the availability of liquidity

 

• Unable to manage higher volume and timely processing of incoming checks

 

• Chargeback were handled manually

 

• Unable to record chargebacks automatically and additional time being spent on accounting for and reconciling chargebacks

 

Unique client requirement / Use case:

In existing process, the client was handling multiple manual steps from scanning to the manual posting, clearing and reversal in case of check returned

Charge backs where handled manually and at times were missed out without system process.

Process flow diagram – Picture 1

 

Business Process

Scenario 1:

Multiple chargebacks with multiple reason code in a single Lockbox file – Integration with dispute management with multiple dispute cases created per reason code

In this scenario we will receive single check payment for multiple invoices from a single customer. The customer applies multiple external charge back codes for short payment. The external reason/chargeback codes are converted to internal reason codes and are populated on the incoming (payment) AR document. The system posts separate line item for each chargeback code in AR document and for each of the reason code system captures the reference information from lockbox file in the text field of incoming AR payment document. Disputes are created in FSCM- dispute management for each of the reason code.  When the disputes are created the internal reason codes in AR are converted to reason codes defined in dispute management and the incoming check number is captured in the title of each dispute case.

Customer master / Business Partner updated with MICR information-Transaction code-XD02 / BP

It is important to have customer master/BP updated with MICR information. if the incoming lockbox file is not able to find the open invoice match, the system will post it to the customer account based on the MICR information.

If the incoming lockbox file has a cutomer invoice match and also has the MICR information populated and if it is missing in customer master/BP, the  system will create a batch input session to update the customer master/BP with the MICR information. BP – Refer Picture 2

Picture 2

 

Business Partner updated with reason code conversion-Transaction code-BP

The reason code conversion is used to map the external reason codes with internal reason code in customizing to process the chargebacks – Refer Picture 3

Picture 3

 

Customer invoice postings1- Transaction code-FB70

The customer invoice can be posted in AR or can be initiated in sales & distribution using sales order for outgoing sales. For demonstrating the lockbox process in the example we have posted the invoice using FB7O in AR module. – Refer Picture 4

Picture 4

 

 

Customer invoice posting2- Transaction code- FB70

This is again customer invoice posted in the AR.

We have posted multiple customer invoices to demonstrate the process of multiple chargebacks with multiple customer invoices – Refer Picture  5

Picture 5

Sample lockbox file with multiple chargebacks codes.

This is the incoming lockbox file from the bank. This file has incoming payments for invoices referenced above. This file also includes the short payments on those invoices with multiple reason codes – Refer Picture 6

Picture 6

 

Lockbox file processing log- showing partial payment for the invoices owed- Transaction FLB2

The system was able to find the open invoices and partially applied the payment and posted the GL  and AR document- Refer Picture 7

Picture 7

 

Lockbox-Log of imported checks- Showing multiple chargebacks.

Further lockbox processing log showing the system identified the invoices based on the reference numbers captured in the invoices. The items that are listed as documents not found are the customer change backs with the check amount showing the net payment after deducting the charge back amounts – Refer Picture 8

Picture 8

 

Lockbox Process Checks-Transaction FLB1- Showing GL document in posting area1 and AR document under incoming customer payments. The GL document represents the posting on bank clearing account  and the AR  document represents the posting to the customer account for incoming payment – Refer Picture 9

Picture 9

 

GL document- for bank clearing – Transaction FB03.

This is the display of GL document posted in posting area1, this document debits the bank accounts and credits the bank clearing account – Refer Picture 10

Picture 10

AR document with reason codes and reference from lockbox file captured in Text field.

The AR document created credited the bank clearing account so it balances out to zero and also clears the open item and posts the shot payments with respective reason codes captured in the reason code field. The internal reason codes are derived from the mapping of external reason codes using the “reason code conv” version populated in the BP master data Refer Picture 11

Picture 11

 

Three separate disputes created for three different charge back codes- Transaction-

The system created three separate dispute cases for the three short payments in dispute management. The disputes can be created by executing the transaction manually or having it created through batch job setup – Refer Picture 12

Picture 12

 

Disputes displayed in transaction – UDM_DISPUTE. The reason codes converted to internal dispute codes

The disputes created above can be displayed individually using the display transaction code. When a dispute is created, the AR reason codes are converted into the internal dispute codes – Refer Picture 13

Refer Picture 13

 

Three separate disputes created with three internal dispute management codes. The dispute cases created will have the case type, case ID assigned, the priority defined as-High, Medium ,Low and will also populate the coordinator and the person responsible for the dispute case along with the disputed amount – Refer Picture 14 (3 images)

Picture 14

 

 

Customer line-item display- showing all the related line items with dispute case ID’s and the reference captured from lockbox file in Text field. The cleared items represent the invoices cleared by the incoming lockbox file and the open items represent the short payments. Though there were short payments for the original invoices system will clear them for the full amount and then creates the open items for short payments – Refer Picture 15

Picture 15

Scenario 2:

 

Single check payment for multiple customer invoices from multiple customers

Multiple customer numbers were created to represent customer per brand to accommodate credit management at the brand level

Scenario Description- In this scenario we will receive single check payment for multiple customer invoices from multiple customers. The system will read the Legacy invoice numbers from the reference filed captured in SAP AR invoices and apply the incoming payments and clear the open invoices

Master Data Updates:

Customer1-Updated with MICR information- Transaction XD02 / BP-

Customer master / Business Partner updated with MICR information-Transaction code-XD02 / BP

It is important to have customer master/BP updated with MICR information. if the incoming lockbox file is not able to find the open invoice match ,the system will post it to the customer account based on the MICR information.

If the incoming lockbox file has a customer invoice match and also has the MICR information populated and if it is missing in customer master/BP, the  system will create a batch input session to update the customer master/BP with the MICR information – Picture 16

Picture 16

 

Business Partner updated with reason code conversion-Transaction code-BP.

The reason code conversion is used to map the external reason codes with internal reason code in customizing to process the chargebacks – Picture 17

Picture 17

 

Customer2: Customer master / Business Partner updated with MICR information-Transaction code-XD02 / BP

It is important to have customer master/BP updated with MICR information. if the incoming lockbox file is not able to find the open invoice match,the system will post it to the customer account based on the MICR information.

If the incoming lockbox file has a cutomer invoice match and also has the MICR information populated and if it is missing in customer master/BP, the  system will create a batch input session to update the customer master/BP with the MICR information2 – Picture 18

Picture 18

 

Customer2 BP updated with lockbox reason code conv.- Transaction BP

The reason code conversion is used to map the external reason codes with internal reason code in customizing to process the chargebacks – Picture 19

Picture 19

Customer Invoice posting on customer1 with Legacy reference number- Transaction FB70

The customer invoice can be posted in AR or can be initiated in sales & distribution using sales order for outgoing sales. For demonstrating the lockbox process in the example we have posted the invoice using FB7O in AR module – Picture 20

Picture 20

Customer Invoice posting on customer2 with Legacy reference number-Transaction FB70

We have posted multiple invoices on multiple customers with in the same company code to demonstrate the process of single incoming check payment for open invoices from these customers – Picture 21

Picture 21

Sample lockbox file with reference numbers and the amounts for the two customers and the two customer invoices posted in the preceding steps – Picture 22

Picture 22

File Saved as .txt  Picture 23

Refer Picture 23

Lockbox processing- Transaction FLB2.

This transaction is executed to manually import the lockbox file into the system for processing. This can be scheduled as a job as well to have the system read it from the ftp folder and process it – Picture 24

Picture 24

Lockbox processing log: This is the lockbox processing log. Once the file is processed the system creates the log to show the GL and AR documents created and the total amount processed along with the check number and payment advice number –  Picture 25

Picture 25

When we hit a back button on the previous step, documents found using references on AR invoices applied. The system will show the details on the amount that was applied along with the message “document found” – Picture 26

Picture 26

Post processing Lockbox Data- FLB1

This is the  post processing screen that lists the GL document in posting area 1 and the AR document created under “Incoming Customer Payments” – Picture 27

Picture 27

 

GL Document for bank clearing account- Posted in Posting Area1- Transaction FB03

This is the display of GL document posted in posting area1, this document debits the bank accounts and credits the bank clearing account Picture 28

Picture 28

 

AR Document- Incoming customer payments. Single check applied to multiple customers- Transaction FB03

The AR document created credited the bank clearing account so it balances out to zero and also clears the open item – Picture 29

Picture 29

Customer line item report- Transaction FBL5N

Customer line-item display- showing all the related line items. The open invoices, incoming payments and clearing document created. The check number has been captured in the text field – Picture 30

Picture 30

 

Business Benefits derived by implementing the above scenarios:

• Incoming checks are now handled through lockbox process and no manual intervention is required eliminating user error.  With the automatic processing the client can now handle larger volume and multiple brands centrally

 

• With the implementation of Lockbox, incoming checks are processed automatically along with customer chargeback which was a manual process in legacy and this has minimized processing time and reconciliation issues, resulting in “Fast Close” for Accounts Receivable process

 

• In EBS, all lockbox related transactions are easily identified and reconciled against the postings from the bank statement

 

• With the integration of Lockbox with dispute management, with the processing of Lockbox file, chargebacks are posted automatically which create the dispute cases in dispute management

 

• With Lockbox automation, Accounts Receivable team is able to focus on other important tasks and customer service-related activities