The lockbox procedure is a system mainly used in the USA to accelerate payment receipt and check processing.

The bank keys data from the checks sent by customers and notifies the payee of the entered information via file transfer. The record layout in the lockbox file must correspond to the standard BAI or BAI2 formats. The bank will transmit to the payee the data medium with relevant information about the checks received once a day or sometimes several times a day. This information can range from simply amounts per check (BAI) to more complex payment and deduction amounts per document paid (BAI2). The SAP System stores this payment information in the form of a Payment Advice which is used to clear subledger open items. The lockbox continues processing by generating automatic postings for both the general ledger and accounts receivable via call transactions. Checks that cannot be fully applied must be corrected using the Post-process function. Two reports, the Lockbox Posting Log and the Log of Imported Checks, are produced during the program run. The advantages of the lockbox service to you, the payee, are the following: Better control of customer check float time. Accelerated collection, deposit and credit memo of checks benefits the payee because you can earn a return on the early collection of cash. The automated lockbox system can reduce your own internal processing costs by automatically updating your cash postings and cash application to the subledger.

The following topics describe the steps required in lockbox processing. There are three general steps to the process: 1. Receipt of a file of check data from the bank. This can be transmitted by the bank, or some banks allow clients to dial in and download the files. 2. Execute the Lockbox Import program (RFEBLB00). This is normally executed overnight in background mode, although it can be run online. 3. Access the Lockbox Post-Process (FLB1) to process any checks that could not be applied in full by the batch program.

What are the steps for lock box configuration? Lock Box Config: Master Data Settings General Ledger Accounts: XXXXX has three lockbox clearing accounts: Company Code 1000 G/L account 1201005, First Union Bank Company Code 1000 G/L account 1201006, PNC, Bank Company Code 2000 G/L account 1201008, Wachovia, Bank General Ledger Account Master Record Settings: Cash G/L accounts exist for each bank. For example account 1105012 is for PNC Bank. If you look at the G/L account master record for this account (Accounting -> Financial Accounting -> General Ledger -> General Ledger -> Master Records -> Display, transaction FS03) you will notice the 'Relevant to Cash Flow' field is checked. Customer Master Record Settings:

In order for the lockbox program to identify a customer the payment MICR must be populated on the customer master record in the General Data: Payment Transactions screen. The remit-to lockbox assignment must also be specified. Regarding the tolerance group assignment, XXXXX only has one configured that is a blank customer tolerance. By defining a blank tolerance group the tolerance group field may remain blank on each customer master record but the tolerance settings are applicable. The tolerance configuration will be reviewed in the next few slides. Finally an alternative payer should be entered on a customer master record if another customer account will pay the bills for the customer. Lockbox Assignment on Customer Master Lockboxes are assigned on customer master records and determine which remit to address is printed on the customer's invoices Tolerance Settings When an incoming cash payment does not exactly pay the referenced open item(s), the system will create a residual item back on the customer's account or write-off the difference if tolerance limits are configured. In SAP tolerance limits are set for users and customer accounts with the stricter limits applying. SPRO -> Financial Accounting -> Accounts Receivable and Accounts Payable -> Business Transactions -> Manual Payment Receipt -> Define Tolerance Groups for Employees Transaction: OBA4 This transaction is used to create tolerance groups for users. The tolerances are defined by company code and at a minimum there must be one assigned to each company code otherwise no postings can occur in the company code.

Company Code Currency Amount per Document The maximum amount that can be posted in an accounting document. Amount per Open Item Account Item the maximum amount that can be posted to a customer or vendor account. Cash Discount per Line Item the maximum cash discount percentage that can be applied to a line item. Amount, Percent, Cash Discnt Adj. To (Both Revenue and Expense) the amount field contains the maximum amount of a customer overpayment (Revenue)/underpayment (Expense). The percent field is the maximum percentage rate difference posted by the system. The lower limit between the amount and percentage applies. Configuration: Define Tolerances (Customers/Vendors) SPRO -> Financial Accounting -> Accounts Receivable and Accounts Payable -> Business Transactions -> Incoming Payments -> Define Tolerances (Customers/Vendors) OR

SPRO -> Financial Accounting -> Accounts Receivable and Accounts Payable -> Business Transactions -> Outgoing Payments -> Manual Outgoing Payments -> Overpayment/Underpayment ->Define Tolerances (Customers/Vendors) Transaction: OBA3 This transaction is used to configure customer tolerances. To change a tolerance select the company code then press the Details icon. Configuration: Define Reason Codes Transaction OBBE is used to configure reason codes by company code. All new reason codes must be configured in each company code. Configuration: Define Text : Transaction OB56 is used to configure the text that appears on a line item based on the reason code entered. Configuration: Define Accounts for Overpayments/Underpayments : Transaction OBXL is part of the automatic account assignment. The GL account for overpayments/underpayments is maintained here. Configuration: Define Posting Keys : Transaction OB41 is used to configure posting keys. Posting keys are two-digit numeric keys that control the entry of document line items. Specifically it controls the account type, debit/credit posting, and layout of entry screens.

Postprocessing Lockbox Data

After the Lockbox program has run, it may be necessary to post-process those checks which could not be applied automatically. In postprocessing lockbox function,, you can select and subsequently process checks using the lockbox number, the status and/or the batch number as required. Proceed as follows: 1. From the Cash Management menu, choose Input -> Lockbox -> Postprocess. The system displays the Lockbox selection screen. 2. Enter specific data for the Lockbox selection, or choose Lockbox Overview to view all existing bank files. It is also possible to select based on check status, for example, all checks that are still Unapplied. When you start the postprocessing function, the system branches you to the lockbox data overview. Here you can see the status of the checks by batch number. Checks are categorized as follows: 1. Applied: Customer identified and check has cleared all document numbers provided. No further processing is required. 2. Partially Applied (BAI2 only): Customer identified and check has cleared one or more document numbers and posted remaining difference on customer account for further processing directly. 3. On-Account: Customer identified via MICR but no document numbers could be found so the full amount of check is posted on customer account for further processing with payment advice. 4. Unidentified: Customer could not be identified through bank information or document numbers so check remains in the unapplied payment clearing account for further processing with payment advice once customer is identified.

When you select a batch, the individual check totals display. Here you can choose a particular check for further processing. Further processing is based upon the status of the check. Note that the data fields displayed on the payment advice can be customized using Line Layouts for Payment Advices. For Applied, the advice is already processed and cannot be accessed. For On-Account, choose the check and you will be taken to the payment advice maintenance where you can change, insert or delete clearing information. Here you can also classify deductions with reason codes that can have the system post a deduction as a residual item to the customer account or write off to a G/L account. After changing the payment advice (it should balance to zero when finished), save the advice and return to the overview screen. To post, select the check and post. Unidentified is similar to On-Account, except the proper customer number must first be entered before any other processing can be done. On the reports and screens, the customer number will be * for unidentified. For Partially Applied , choose the check and post. You are brought to the customer clearing screen with the remaining items from the check at the top of the list of open items. Here you can also classify deductions with reason codes that can have the system post a deduction as a residual item to the customer account or write off to a G/L account. Once selecting the documents to be cleared and have entered any appropriate reason codes, simply post the transaction. You can change the status of a single check or an entire lockbox batch from partially applied to applied based upon user preference. By clicking the "I" button (Information Button), detailed information about the check, for example, the posted documents, displays. By double-clicking the document number, you can navigate to document display. Choose Environment Payment usage to find out which invoices were cleared by the check. For further information on payment advices and reason codes, please see accounts receivable Payment Advice Notes and system administration guide Reason Codes.