Application Rule Sets in Oracle Receivables

Application Rule Sets in Oracle Receivables

Application Rule Sets determine how Receivables reduces the balance due for a transaction's line, tax, freight, and late charges.

The following are types of Application Rule Sets in Receivables:

Line First - Tax After: Apply to the open line item amount first. Apply any remaining amount in the following order: tax, freight, and then late charges.

This rule set first applies the payment to the open line amount, and then applies the remaining amount to the associated tax. If the payment is greater than the sum of the line and tax, Receivables attempts to close each open item by applying the remaining amount in the following order, stopping when the payment has been fully applied:

1. Freight
2. Late charges

Any remaining receipt amount is applied using the Overapplication Rule. This is the default application rule set in the System Options window.

Line and Tax Prorate: Apply a proportionate amount to the open line item amount and the open tax amount for each line. Apply any remaining amount to freight and then to late charges.

This rule set applies a proportionate amount of the payment to the open line and tax amount for each line. If the payment is greater than the sum of the open line and tax amounts, Receivables attempts to close each open item by applying the remaining amount in the following order, stopping when the payment has been fully applied:

1.      Freight

2.      Late charges

Any remaining receipt amount is applied using the Overapplication Rule.

Prorate All: Apply a proportionate amount to the line, tax, freight, and late charges.

This rule set applies a proportionate amount of the payment to each open amount associated with a debit item (for example, any line, tax, freight, and late charge amounts for this item).
Receivables uses the following formula to determine the applied amount:
Applied Amount = open application line type amount / sum of application line types in rule details * Receipt Amount
Any remaining receipt amount is applied using the Overapplication Rule.

Overapplication Rule

Each application rule set includes an Overapplication Rule by default. This rule applies any remaining receipt amount after the balance due for all charges has been reduced to zero. If the transaction type for the debit item has the Allow Overapplication check box set to Yes, Receivables applies the remaining amount to the lines, making the balance due negative. If the item's transaction type has Allow Overapplication set to No, you can either place the remaining amount on-account or leave it 'Unapplied'.
When using AutoLockbox, Receivables uses your AutoCash Rule Set to determine how to apply the remaining amount.

Note: In an application rule set, each line type (line, freight, and tax) must appear once and only once.

Note: While defining Application Rule Set you cannot enter a sequence number for the Overapplication rule. By default, this rule is last in the sequence for each application rule set.

Attention: Receivables automatically assigns the Overapplication rule to each application rule set. You cannot delete this rule. The Overapplication rule applies any remaining amount after the balance due for each item has been reduced to zero. If the transaction type of the debit item allows overapplication, this rule prorates the remaining amount between each line and its associated tax amount, making these amounts negative. If the transaction type does not allow overapplication, you can either place the remaining amount on-account or leave it 'Unapplied'.

N: Setup>Receipts>Application Rule Sets

To define an application rule set:

1. Navigate to the Application Rule Sets window.
2. Enter a Name and Description for this rule set. 
3. Enter the Sequence number for this application rule. Receivables applies payments in this sequence, beginning with the lowest sequence number.

Note: You cannot enter a sequence number for the Overapplication rule. By default, this rule is last in the sequence for each application rule set. 

4. Enter an application Rule. Each rule will correspond to a line type (for example, lines, freight, or charges), so you should give your rule a descriptive name. Each rule set must have at least one application rule.

Attention: Receivables automatically assigns the Overapplication rule to each application rule set. You cannot delete this rule. The Overapplication rule applies any remaining amount after the balance due for each item has been reduced to zero. If the transaction type of the debit item allows overapplication, this rule prorates the remaining amount between each line and its associated tax amount, making these amounts negative. If the transaction type does not allow overapplication, you can either place the remaining amount on-account or leave it 'Unapplied'.

5. Enter Rule Details for this application rule. This section indicates the type of charges and the tax handling for this rule. Choose a Type of Line, Freight, or Charges. You need to enter at least one type for your rule set.

6. If you chose a Type of 'Line', choose a Tax Treatment. Choose one of the following:

Prorate: Choose this option to proportionately reduce the net amount of the line and associated tax amounts.

Before: Choose this option to first reduce the open tax amount, then apply any remaining amount to the line.

After: Choose this option to reduce the open line amount, then apply any remaining amount to the associated tax.

Note: The default Tax Treatment for your Freight and Charges types is None. This option ignores tax, since you cannot tax freight and charges in Receivables. You cannot choose None for your Line type.

7. To automatically adjust this line type to account for any rounding corrections within this rule set, check the Rounding Correction box. When an amount is prorated among several line types, Receivables must use one of the line types to account for the rounding adjustment. Each application rule set must have one and only one rounding correction line type.

Suggestion: Assign the Rounding Correction to the line type that is usually the largest portion of your invoices. By doing this, the rounding correction will have the least effect on the overall remaining and applied amounts for this line type.

8. Repeat the previous steps for each rule you want to add to this rule set.

9. When you are satisfied with this rule set definition, check the Freeze box. Receivables verifies that your application rule set is defined properly and that it does not violate any basic application guidelines. If this rule set fails validation, Receivables displays an error message. In this case, modify your rule set definition, then check the Freeze box again to revalidate it.

Attention: A rule set must be 'frozen' before you can assign it to a transaction type or use it as your default rule it in the System Options window. Additionally, after you freeze an application rule set, you cannot update or delete it.

Late Charges in Oracle Receivables

Late Charges

Calculating Late Charges:

Calculate late charges against past due debit items for each customer, account, or site. Late charges are calculated according to the organization's late charge policy.

For example, set up late charge policy to assess late charges using different calculation methods and also vary the charge based on the number of days that a payment is overdue; for example, assess increasingly higher charges as a payment becomes more overdue. Even choose to assess a penalty fee in addition to any calculated late charges.

Once late charge policy (one policy per organization) is defined, indicate for which customers late charges are applicable. Late charges on a set of customers using a customer profile class will be applicable. Exclude one or more customers, or one or more transactions, from late charge calculations.

Use the Generate Late Charges program to actually generate the charges. Run the program in draft mode to preview late charges and make corrections, if required.

Receivables determine how to account for late charges. Choose how to present late charges to the customers: as an adjustment against the original transaction; as an interest invoice; or as a debit memo.

Receivables calculate late charges independently of dunning and statements. To ensure that late charges appear on Receivables statements, as well as on dunning letters that Oracle Advanced Collections prints, it is mandatory to run the Generate Late Charges program before creating statements or dunning letters.

Setting Up Late Charges:

Assess late charges against past due debit items for each customer, account, or site.

The calculation of late charges is determined by Organization’s late charge policy. Set up Organization’s policy to control various decisions, such as whether Organization assesses late charges, and how those late charges are calculated.

To set up organization to assess late charges, complete the following steps:

1. Define Organizational Late Charge Policy.
2. Set Up Late Charge Documents and Accounting.
3. Define Interest Tiers and Charge Schedules.
4. Define Late Charge Policies.
5. Review Late Charge Policies at the Customer or Transaction Levels.

Step1.  Define Organizational Late Charge Policy.

Select the Assess Late Charges box in the System Options window. Receivable reviews this option first, before reviewing the various aspects of late charge policy.

In the System Options window, provide information to process the late charge documents that organization sends to customers, as well as possible interest calculation alternatives for balance forward billing.

Step2. Set Up Late Charge Documents and Accounting.

Record late charges as one of three document types:

       Adjustments

       Debit Memos

       Interest Invoices

Follow the setup steps below to indicate how Receivables should record late charges and present them to customers. Complete this step for each organization in which organization assesses late charges.

Recording Late Charges as Adjustments:

Record late charges as adjustments, then Receivables combine all interest charges relating to an overdue transaction, and create a single late charge adjustment against that transaction.

To use this document type, complete the following steps:

1. Define a late charge receivable activity and specify the activity's GL account.
2. Optionally create a separate receivables activity for penalties. Receivable creates penalties as a separate adjustment against the overdue transaction.
3. Select these activities during system options setup.

Recording Late Charges as Debit Memos or Interest Invoices:

If Organization record late charges as debit memos, then Receivables create one debit memo per overdue transaction.

If Organization record late charges as interest invoices, then Receivables creates a single interest invoice per customer site and currency. The interest invoice consolidates and itemizes charges for a period, and includes details about charges for each overdue transaction.

To use either document type, complete these steps:

1.      Define a late charge batch source with a type of Imported.

Receivable creates a debit memo or interest invoice batch using the Invoice API.

2.      For debit memos, define a transaction type with a class of Debit Memo.

For interest invoices, define a transaction type with a class of Invoice.

Specify the Receivable and Revenue accounts. Receivable uses these accounts instead of AutoAccounting when generating late charges.

Suggestion: Use a name and description to clearly indicate that this transaction type is used only for late charges.

3.    Select the interest invoice transaction type or debit memo charge transaction type (depending on which document that organization want to use), and late charge batch source during system options setup.

Note: Receivables treats interest invoices and debit memos as regular transactions, so tax may be calculated.

Step3. Define Interest Tiers and Charge Schedules.

If required, Customize late charges for both interest and penalties by creating interest tiers and tying those tiers to a charge schedule:

o   Use the Aging Buckets and Interest Tiers window to define a set of interest tiers based on ranges of late days.

• Assign amounts or percentages to interest tiers in the Charge Schedules window.

Step4. Define Late Charge Policies.

Organization can control how late charges are calculated by defining late charge policies in the Customer Profile Classes window. If necessary, define a different late charge policy per customer profile class.

Assign a customer profile class to a customer, the late charge policy is defaulted to the customer account, but those values can be changed. Also define a late charge policy at the site level if required.

To define a late charge policy, navigate to the Customer Profile Classes window, query or enter a new customer profile class, and set the options described below. Use both the Late Charge Profile and Profile Class Amounts tab to define a late charge policy:

· Defining a Late Charge Profile 

· Defining Profile Class Amounts

Defining a Late Charge Profile:

1.      On the Late Charge Profile tab, enable the assessment of late charges by selecting the Enable Late Charges box.

To assess late charges, you must select both the Assess Late Charges system option and this Enable Late Charges box.

1. Decide how Receivables should calculate late charges. Select one of three methods:
1. Average Daily Balance: Calculate late charges based on the average daily balance of overdue invoices. Use this calculation method if you are sending balance forward bills to your customers.
2. Late Payments Only: Calculate late charges based on the number of days between the payment due date and the actual payment date. Receivable uses the paid amount as the overdue invoice amount when calculating the late charge.
3. Overdue Transactions Only: Calculate late charges for transactions, based on the number of days a payment is late when you submit the Generate Late Charges program.
4. Overdue Transactions and Late Payments: Calculate late charges on both overdue transactions and late payments. This option levies the largest late charge amount on a customer.

For example, organization calculates late charges on the 15th and 30th of each month. Customer has an overdue invoice of Rs.1000/- that falls due on November 16:

1. On November 30, you run the Generate Late Charges program.

Receivable calculates late charges for this overdue invoice.

2. On December 10, your customer pays the invoice.
3. On December 15, you run the Generate Late Charges program again.

Receivable assesses further charges for the additional 10 days that the payment was overdue.

2. Decide how Receivables should handle credit items and disputed transactions when calculating late charges:

• Select the Credit Items box to have credit items, such as unapplied or on-account receipts, or on-account credits, reduce the total overdue amount. Selecting this option reduces the late charge.
• Select the Disputed Transactions box to include disputed transactions in the total overdue amount. Selecting this option increases the late charge.

3. Indicate how Organization would like to present late charges to customers assigned with this customer profile class. Organization can record late charges as one of three document types:

• Adjustment: Receivable calculates late charges as an adjustment against the overdue transaction.

If Organization levy penalty charges, then Receivables creates two adjustments.

If Organization selected the Credit Items box in the previous step, then credit items reduce the outstanding overdue amount during late charge calculations.

• Debit Memo: Receivable creates one debit memo per overdue transaction.

If Organization levy penalty charges, then Receivables includes a separate line for penalty charges.

If Organization selected the Credit Items box in the previous step, then credit items reduce the outstanding overdue amount during late charge calculations.

• Interest Invoice: Receivable creates a single interest invoice per customer site and currency. The interest invoice consolidates and itemizes charges for a period, and includes details about charges for each overdue transaction.

If Organization levy penalty charges, then Receivables includes a separate line for penalty charges.

If Organization selected the Credit Items box in the previous step, then Receivables calculates negative charges on existing credit items, and includes those negative charges as lines on the interest invoice.

4. If you record late charges as debit memos or interest invoices, then select a payment term to indicate the debit memo or interest invoice's due date.

Note: If balance forward billing is enabled, then this value defaults from the payment term on the balance forward bill.

5. Select message text to print comments on the debit memo or interest invoice.
6. Select the interest calculation formula:

• Flat Rate: Use a flat rate to calculate the late charge amount. Receivables ignore the number of days that a payment is overdue. The formula is:

Amount Overdue * (Interest Rate/100)

• Simple: Calculate late charges on overdue transactions only. The formula is:

Amount Overdue * (Interest Rate/100) * (Number of Days Late/Number of Days in Period)

• Compound: Calculate late charges on the sum of overdue transactions and prior late charges. The formula is:

(Amount Overdue + Prior Late Charges) * (Interest Rate/100) * (Number of Days Late/Number of Days in Period)

7. Select the interest calculation period:

• Daily: Receivables determine the number of days that a payment is overdue to the exact day. For example, if a transaction is 45 days past due, then Receivables calculates late charges based on 45 days.
• Monthly: Receivables determine the number of days that a payment is overdue by rounding up to the nearest month. For example, if a transaction is 45 days past due, then Receivables calculates late charges based on 60 days.

8. Enter the number of days in the interest period. Receivables use this number when calculating late charges.

Typical values are either 30 or 365 (to represent either a monthly or an annual interest period), but you can enter any value.

9. Enter the number of receipt grace days after a transaction's due date before late charges will be calculated.

However, after the grace days expire, Receivables calculates the number of days overdue using the original due date.

10. Indicate if you want transactions that were assessed late charges to be put on hold from future late charge calculations:

• Yes: After Receivables assesses late charges on a transaction, that transaction is exempt from future late charge calculations.
• No: An overdue transaction will be subject to late charges as long as the transaction remains unpaid.

This option applies only when charges are calculated using the Overdue Transactions Only or Overdue Transactions and Late Payments calculation method.

11. Optionally enter a charge beginning date, which indicates when to start assessing late charges on customers assigned to this customer profile class.
12. Use the Use Multiple Interest Rates box to indicate which interest rates Receivables will use when calculating late charges for interest invoices. Use this check box if the late charge period spans multiple periods as defined in the charge schedule:
1. Select this box to calculate late charges by first multiplying the number of days each rate was effective by the effective interest rate, and then adding all results.
2. To use only the interest rate that was effective on the invoice due date, leave this box unchecked.

Define interest tiers and related charge schedules, so that Receivables can use different interest rates depending on how late an overdue transaction is.

Defining Profile Class Amounts:

Define profile class amounts per currency.

Attention: If Organization do not assign an interest rate to a currency, Receivables does not calculate late charges for past due items in that currency.

1. On the Profile Class Amounts tab, use the Minimum Customer Balance and Minimum Invoice Balance fields to indicate whether late charges (not penalties) should be assessed against a customer account or invoice. Receivables assess late charges if the minimum customer and invoice balances are exceeded.

Define these values as either an amount or percentage of the total overdue amount.

2. Use the Minimum Charge Per Invoice and Maximum Charge Per Invoice fields to establish limits on whether Receivables will record late charges for an invoice. Receivables assess late charges provided that the total late charge amount falls within this range.

These values are per calculation period, and ignore any penalties that may already be levied on a customer.

3. Use the Interest Charge Type, Value, and Charge Schedule fields to indicate how Receivables calculates late charges on overdue transactions. For the charge type, select:

• Fixed Amount: Receivables use the value you specify in the Value field during late charge calculations. This amount does not change as the overdue transaction ages.
• Fixed Rate: Receivables use the interest rate you specify in the Value field during late charge calculations. This rate does not change as the overdue transaction ages.
• Charge Schedule Per Invoice: Receivables uses a charge (amount or percentage) for each invoice based on the schedule specified in the Charge Schedule field. The application applies the charge assigned to each tier to all the invoices in that tier to calculate the total charge amount. For example, if there are two invoices, INVOICE01 and INVOICE02, in a tier and the charge specified for the tier in the charge schedule is an amount of Rs.10/-, then Receivables calculates the total charge amount as Rs.20/-.
• Charge Schedule Per Tier: Receivables uses a fixed charge (amount) for all the invoices in a tier based on the schedule you specify in the Charge Schedule field. The fixed charge is prorated between the invoices based on the amount due.

4. Use the Penalty Charge Type, Value, and Charge Schedule fields to indicate how Receivables calculates penalties. Penalties are optional and are calculated separately from late charges. For the charge type, select:

• Fixed Amount: Receivables apply the flat fee that you specify in the Value field, in addition to late charges.
• Fixed Rate: Receivables calculate the penalty as a fixed percentage of late charges.
• Charge Schedule Per Invoice: Receivables uses a penalty charge (amount or percentage) based on the schedule you specify in the Charge Schedule field.
• Charge Schedule Per Tier: Receivables use a fixed penalty charge (amount) for all the invoices in a tier based on the schedule you specify in the Charge Schedule field. The fixed charge is prorated between the invoices based on the amount due. For example, if there are two invoices INVOICE01 and INVOICE02 each with an amount due of Rs.100/- in a tier, and the fixed charge specified for the tier in the charge schedule is an amount of Rs.10/-, then Receivables calculates the total charge amount as Rs.10/. The application then prorates the total charge between the two invoices as Rs.5/- each.

Step5. Review Late Charge Policies at the Customer or Transaction Levels:

Customer Exceptions: Use the Late Charges tab at the customer account or site levels to review late charge setup details defaulted from the customer profile class. You can change any setup option at either the account or site level..

Optionally set the AR: Use Statement, Dunning, and Late Charges Site Profiles profile option to control which account site's late charge setup is used by the Generate Late Charges program.

Transaction Exceptions: If you normally charge late charges for your customers' past due debit items, but you want to exclude a specific debit item from late charge calculations, select the Exempt from Late Charges box in the Transactions window for that item.

Or, exclude a whole class of transactions by selecting the Exclude from Late Charges Calculation box on the transaction type.

Transaction Types in Oracle Receivables

Transaction Types in Oracle Receivables

The following are the Transaction Types in Oracle Receivables:

1.     Invoice

2.     Guarantee

3.     Deposit

4.     Debit Memo

5.     Credit Memo

6.     Chargeback

7.     Bills Receivables

The Transaction Types are used to define the accounting for the above Transaction Types and also determines whether the transaction entries update the Customer’s balances and posts these transactions to the General Ledger.

If AutoAccounting depends on Transaction Type, Oracle Receivable uses the GL Accounts from the Transaction Type, along with AutoAccounting Rules to determine the default Revenue, receivable, freight, tax, unearned revenue, unbilled receivable, and AutoInvoice clearing accounts for transactions created using a Transaction Type.

The GL Accounts defined in the Bills Receivable Transaction Type determines the bills receivable, unpaid bills receivable, remitted bills receivable and factored bills receivable accounts for a bill receivable.

The Transaction Types should be defined in the following order:

1.       Credit Memo Transaction Types

2.       Invoice, Debit Memo, and Chargeback Transaction Types

3.       Bills Receivable Transaction Types

4.       Commitment Transaction Types i.e. Deposit & Guarantee

Note: Define Invoice Transaction Types before defining Commitment Types.

Suggestion: To void a Transaction Type with ‘Open Receivables’ and ‘Post to GL’ set to ‘No’ when there is no activity against the transaction. Then the Transaction Status can be changed to ‘Void’. The Transaction Type will become invalid.
If there is any activity associated with the transaction, the Transaction Status cannot be changed. When try to change the Transaction Status the System throws the following error messages:

When try to change Transaction Status:
Error: APP-AR-96128: You cannot enter a parent value for this segment. Please enter a child value instead.

When try to uncheck ‘Open Receivables’ and ‘Post to GL’ checkboxes.
Error: APP-AR-96626: You cannot change a transaction type which has been used.

Nature Application & Allow Over Application: These options determines how receipt applications can affect the balance due for transactions use this Transaction Type(s).

Natural Application refers to the type of application, either positive or negative, that a transaction requires becoming closer to zero.

Example: Invoice have a positive balance Rs.10000/- , to reduce the invoice balance due to zero by creating a negative application i.e. Receipt for Rs.10000/-

Over Application indicates that the receipt can be over applied against a transaction by using the Transaction Type(s).

Example: Apply a receipt Rs.5000/- to the invoice Rs.4000/- the remaining receipt amount Rs.1000/- will be reversed its sign from positive (1000) to negative (-1000).

Note: If you choose Do Not Print, iReceivables does not display the details for transactions with this transaction type

Note: Use tax classifications only if you upgraded to Release 12 from Release 11i.

Accounts Payable Trial Balance Report

Accounts Payable Trial Balance Report

Accounts Payable Trial Balance Report is used to verify the Total Accounts Payable Liabilities in Payables, the Total Accounts Payable Liability should be equal in the general ledger. Before closing a period, compare the cumulative total liability provided by the AP Trial Balance Report with the total liability provided by the General Ledger to reconcile the balances.

The Trial Balance Report lists subtotals by supplier including all unpaid and partially paid invoices for which Payables created journal entries. Payable lists subtotals and the invoices by the Accounts Payable Liability account. These invoices represent your organization's outstanding accounts payable liability. Therefore, to get the most up-to-date trial balance, you should create journal entries for your payment and invoice activity before submitting this report.

AP Trial Balance Report presents outstanding accounts payable liability information; it is only valid for an accrual basis account method.

In case of Multiple Currencies (MRC), Payables displays a Rounding Adjustments for Liability Account field for each liability account that has a rounding error situation. You may have a very small rounding adjustment if you make several partial payments on a foreign currency invoice. The sum of the functional currency equivalents for those partial payments may not sum to the functional currency invoice amount.

Example, $1000.00 is a functional amount invoice versus $999.99 if you make multiple partial payments. This fully paid invoice does not show up on the trial balance but Payables does keep track of this small rounding difference so you can identify why the accounts payable balances may differ between your general ledger and Payables.

A positive amount represents an outstanding accounts payable liability in the general ledger if you have posted the invoice. This can result from non-payment, partial payment, or not creating a journal entry for the payment.

A negative amount can result from transferring a payment to your general ledger without transferring the invoice, or from transferring both the invoice and an overpayment.

Payment Batches in R12

Payment Batches in R12

Steps to be done for payment batch in R12

In order to make use of the payment batches functionality in Release 12 under payables module, you need to perform most of the required setups from Payments Administrator or Payments module.

The payment batch (11i) is renamed as Payment process Request (PPR in R12).
The process remains the same.

Selection of invoices, build, format and confirm.

Few reports which were used in r11 in the above processes were obsolete and replaced with few new ones in r12.

Define the following in order to make multiple payments in release 12.

Ø  Bank Account

Ø  Payment Format

Ø  Payment Method

Ø   XML template

Ø  Payment Process Profile

The following are the steps for Paying Invoices in Payment Batches:

1. Initiate the payment batch by entering criteria for invoices you want to pay. Payable select invoices and builds the payments; it determines which invoices will be paid on each payment document and lists this information on the Preliminary Payment Register.
At any time before formatting, you can optionally modify the payment batch. You can prevent payment to a supplier, prevent payment of a particular invoice, change the invoice amount, or add an invoice that Payables did not originally select.

2. Format payments produce an output file.

3. Print checks from the output file, create electronic payments, or deliver the output file to your bank to disburse electronic payments.

4. Confirm the payment batch by recording the document numbers associated with each payment. During this step Payables update the invoices status to “Paid” and associates a payment number with the invoice and invoice payment. Do not send checks to suppliers before confirming the payment batch.

Payable creates a Final Payment Register which you can review to verify the completed payment batch.

After confirming the payment batch, you can review the Payment Batch Control Report to verify the accounting distributions of the invoices you paid. You can submit this report after every payment batch to compare it with actual payment information.The report displays payment, supplier, invoice, and expense information.

You can check the status of a payment batch at any time during the payment batch process by checking the Status field in the Payment Batches window.

You can restart a payment batch if a concurrent process fails. You can also restart check printing if the printer malfunctions during check printing.