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Lockbox Processing in SAP

Introduction:

Lockbox is a service provided by banks to process faster payments and reconcile the open account receivable invoices of the company/organization it is associated with. Lockbox is a postbox created by the bank at strategic geographies where a company expects its business to collect receivables. The company informs its customers to deposit the remittance in the designated lockboxes and bank professionals make sure the lockboxes are checked frequently to collect checks remittance information (related to invoice the payment is against) and payment is credited to the company’s account. This process of lockbox ensures – fast payment processing, improved accounts receivable, accurate and timely information of the cash inflow.

On the contrary, there are few disadvantages like – fee per payment, chances of theft, not very useful for company with many payments in small denomination (since it will result in higher lockbox fee).

Types of lockbox format SAP supports:

  1. BAI
  2. BAI2

BAI stands for Bank Administration Institute. BAI file format includes basic information like –

  • customer MICR
  • check amount
  • invoice number

On the other hand, BAI2 file format includes detailed information like –

  • customer MICR
  • check amount
  • invoice number
  • payment amount per invoice
  • deduction amount per invoice
  • reason code (deduction)

In this article, I will be focussing on BAI2 format which also happens to be the most widely used and accepted format across banks and companies implementing SAP ERP.

BAI2 file structure (sample):

These record with the lockbox file can be explained with below structures:

Record%201%20-%20Header

Record 1 – Header

Record%202%20-%20Service

Record 2 – Service

Record%204%20-%20Overflow

Record 4 – Overflow

Record%205%20-%20Detail%20header

Record 5 – Detail header

Record%206%20-%20Detail

Record 6 – Detail

Record%207%20-%20batch%20total

Record 7 – Batch total

Record%208%20-%20Lockbox%20total

Record 8 – Lockbox total

Record%209%20-%20Trailer

Record 9 – Trailer

SAP configuration behind lockbox processing:

Configure house bank:

FI12

OBAX

OBAY

OB10

Transaction:

Customer invoice: FB70

FBL2:

The open customer invoice should now be cleared:

FBL5N:

Post processing:

For the checks that have not been applied i.e. they fall under either of – partially applied, on-account or unidentified.

FLB2:

This is the case of on-account posted status.

Now, to change the on-account to applied, post processing can be done on this lockbox file using FLB1

FLB1:

Select the line and click on “Edit payment advice”

As you can see, payment advice balance is not zero. You will have to edit it manually to make it zero. Click on Fast Entry to make the balance zero

Click on Save and then Edit – Post

Now check the receivable:

FBL5N:

Check the lockbox overview to confirm the payment has been applied:

FLB1:

Note – Similar post processing steps can be done in case of unapplied/unprocessed scenario. In case of partially applied scenario, select the payment advice and click on Edit-Post, this will ensure automatically clearing.

 

Journal Entry posted via lockbox and EBS:

Lockbox:

Dr bank clearing      Dr lbx clearing

Cr lbx clearing         Cr customer a/c

 

EBS:

Dr main bank GL

Cr bank clearing

 

Conclusion: Lockbox service is widely accepted and used but due to its processing fee and chances of theft, new technology has emerged which ensures seamless integration with company’s accounts receivable process that provides electronic check deposits, remittance/form processing and cash application which would automate the complete process of receivable reconciliation and cash application process.

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